ir^ 


UNIVERSITY 
AT   LO 


CALIFORNIA^ 
ANGELES       - 


MONETARY  AND  INDUSTRIAL 

FALLACIES. 


a  J^talogue* 


BOSTON: 
HOUGHTON,  OSGOOD  AND   COMPANY. 

Grk  Ribcreitif  Prrgc,  Cimbri^sc 

1878. 


>  >  J  >  t 


''  >t  .%  :>?  '/ 


COPTEIGHT,  1878, 

Br   J.  B.  HOWE. 


RIVERSIDE,   CAMBRIDGE: 

STEREOTYPED   AND  PRINTED   BT 

H.   0.  nOUGUTON   AND  COMPANY 


PEEFAOE. 


a: 
QQ 


The  following  dialogue  was  intended  to  form  part  of  a 
work   entitled   The   Political   Economy   of    Great    Britain, 
the  United  States,  and  France,  in  the  Use  of   Money:  A 
New  Science  of   Production  and  Exchange.     As  it  would 
swell  the  book  to  too  great  a  size  for  convenience,  it  is  pub- 
lished  separately.     To  some   minds   this   form  of   arguing 
economical  and  monetary  questions  may  be  more  agreeable 
than  a  didactic  and  formal  one ;  and  besides  this,  a  compari- 
rt    son  with  prevailing  opinions  can  be  carried  along  at  the 
~    same  time.     New  ideas  are  thus  presented  in  the  most  forci- 
g  ble  manner  possible,  and  those  who  offer  them  have  some 
opportunity  of  being  heard,  by  being  found  in  company  with 
those  who  can  argue  in  favor  of  the  old  ideas.    The  dialogue 
introduces  a  skilled  workman  who  is  in  search  of  work,  who 
,.  thinks  the  national  banks  ought  to  be  immediately  wound 
up  because  they  are  making  money  scarce,  and  their  notes 
sc   replaced  by  government  issues.    Absurd  as  this  scheme  really 
"^    is,  and  as  it  certainly  appears  to  most  men  who  have  any 
knowledge  of  practical  affairs,  some  business  men,  thousands 
of  laborers,  skilled  and  unskilled,  and  some  men  who  are 
well  known  as  writers  upon  economical  questions,  support  it. 
The  minds  of  ignorant,  and,  in  many  instances,  vicious,  as 
well  as  ignorant  men,  are  being  filled  with  false  ideas  by 
traveling  lecturers  and  speakers,  in  some  parts  of  the  United 
States,  and  there  is  no  organized  effort  to  counteract  it.    The 
spirit  of  destructiveness  and  Communism  is  attracted  very 
naturally  by  such  arguments,  and  the  result  may  be  the 
prostration  of  industry  and  commerce  for  years,  by  the  in- 
definite postponement  of  a  return  to  convertibility  of  bank 


i013 


4  PREFACE  TO  DIALOGUE. 

and  government  debt  now  used  as  money.  The  dialogue  in- 
troduces a  writer  who  favors  a  government  currency  convert- 
ible into  funded  debt,  the  lal^ter  being  reconvertible  into 
currency  at  the  pleasure  of  the  holder.  How  the  govern- 
ment is  to  loan  this  currency  without  turning  banker,  this 
writer  and  his  brethren  are  unable  to  say,  because  they  have 
not  thought  about  that.  The  dialogue  introduces  also  a 
writer  of  the  prevailing  school  of  economists,  who  thinks 
bank  credits  are  likely  to  liberate  gold  from  banking  reserves, 
until  finally,  as  "clearings"  are  extended  from  time  to  time, 
the  gold  required  for  reserve  becomes  a  mere  trifle,  and  that 
metal  as  well  as  silver  is  hxrgely  exported  and  sold,  for  use  in 
barbarous  or  half-civilized  countries.  The  same  writer  in- 
sists that  there  cannot  be  such  a  thing  as  overproduction, 
and  that  a  banking,  commercial,  and  industrial  crisis  is 
merely  a  matter  of  "  over-trading  "  and  "  speculation."  These 
economists  argue  their  own  case  together  when  they  agree, 
and  when  they  do  not,  each  for  himself,  in  opposition  to  a 
banker  who  has  adopted  the  ideas  maintained  in  the  book 
above  referred  to.  This  banker  insists  that  all  money  is  sub- 
stantially one  and  the  same  thing,  —  a  process  for  the  ex- 
change and  distribution  of  the  products  of  labor ;  that  gold 
and  silver  are  the  most  perfect  form  and  kind  of  money, 
and  that  for  all  ratios  of  valuation  and  all  equations  of  ex- 
change between  buyers  and  sellers,  in  order  to  have  the  true 
and  real  benefit  which  gold  and  silver  are  able  to  confer,  a 
definite  portion  on  short  averages,  of  units  of  gold  or  silver, 
ought  to  form  a  part  of  the  total  number  of  units  of  money 
(whether  units  of  bank  or  government  debt  constitute  the 
remainder)  in  every  ratio  and  equation.  This  result  is  ob- 
tained by  a  metallic  reserve,  varying  in  short  periods  only, 
from  a  definite  ratio  to  bank-loans.  This  banker  maintains 
the  proposition  that  while  natural  inequalities  of  condition 
and  of  ability  are  essential  to  the  progress  of  society  and 
even  to  civilization,  because  without  them  there  could  be  no 
loans  and  therefore  no  production  on  credit,  yet  by  the 
uncertain  degrees  of  economy  of  gold  and  silver,  which 
a  constantly  variable  banking  reserve  implies,  production  on 


PREFACE  TO  DIALOGUE.  5 

credit  is  carried  to  such  an  excess  as  to  bring  about  peri- 
odically crises  which  appear  in  banks,  in  commerce  and  in 
industry.  Hence  the  attempt  to  establisli  a  bank-note  cur- 
rency by  the  Act  of  1844,  in  England,  "varying  as  gold 
would  vary,"  was  utterly  futile,  because  Adam  Smith's  law 
in  respect  to  bank-notes,  —  that  they  ought  not  to  exceed  in 
volume  the  metal  they  displace, — is  equally  applicable  to 
all  bank  loans.  The  non-perception  of  this  law,  as  equally 
applicable  to  the  loans  of  all  banks,  and  it  may  be  the  im- 
possibility of  carrying  it  out  in  respect  to  deposit-loan  banks, 
have  caused  England  and  the  United  States  much  loss  and 
suffering.  Production  is  subject  to  a  law  which  is  para- 
mount to  money, — the  necessity  of  exchanging  the  products 
of  labor.  The  coinage  of  silver  is  also  incidentally  dis- 
cussed. A  conservative  banker  is  introduced,  who  believes 
in  the  doctrines  of  the  economists  of  the  day,  but  is  ready 
to  hear  all  sides,  and  anxious  to  learn  the  truth. 


MONETARY  AND   INDUSTRIAL   FALLACIES. 


In  the  following  dialogue  the  speakers  are  a  skilled  la- 
borer, a  banker  of  the  old  school  of  opinion  in  relation  to 
deposit  and  deposit  loans,  metallic  and  convertible  paper, 
money,  etc.,  a  writer  of  the  same  school,  a  writer  on  Political 
Economy  who  maintains  with  the  skilled  laborer  that  what 
is  needed  for  the  country  is  more  money,  and  a  banker  who 
has,  after  careful  examination,  adopted  the  opinions  main- 
tained in  this  book.  The  skilled  laborer  I  designate  by  the 
initials  S.  L. ;  the  banker  of  the  old  school  of  opinion  by 
the  initials  O.  S.  B. ;  the  political  economist  of  the  same 
old  school  by  O.  P.  E.  ;  the  writer,  who  favors  more  money, 
and  also  the  "  convertible-bond  "  currency  scheme  by  C.  B. 
C. ;  and  the  banker  of  the  new  school  of  opinion  maintained 
in  this  book  by  the  initials  N.  S.  B. 

S.  L.,  O.  S.  B.,  and  N.  S.  B.  meet  each  other  casually  and 
open  the  dialogue:  — 

iS.  L.  I  am  out  of  employment,  gentlemen  ;  my  occupa- 
tion is  that  of  steam-engine  maker ;  can  you  direct  me  to  a 
place  where  I  can  get  work  ? 

0.  jS.  B.  That  work  is  said  to  be  overdone.  I  do  not 
believe  it,  although  I  know  of  no  place  where  it  can  be  had. 
Good  workmen  can  always  get  work :  there  is  an  abundance 
of  everything  :  the  land  is  teeming  with  wealth  and  grana- 
ries are  bursting.  You  certainly  ought  to  be  able  to  get 
work. 

*S'.  L.  All  you  say  may  be  true,  but  nevertheless  I  have 
spent  much  time  in  trying  to  get  the  work,  which  you  say 
is  80  easy  to  be  had,  and  have   not  succeeded,  although  I 


8  MONETARY  AND   INDUSTRIAL  FALLACIES. 

believe  myself  to  be  a  fair  workman.  Rather  than  wait  any 
longer  for  the  work  I  know  how  to  do,  I  am  willing  to  try 
my  hand  at  any  kind  which  will  furnish  me  board  and 
clothes.  If  the  government  would  only  issue  more  green- 
backs, or  coin  plenty  of  silver  and  set  us  laboring  men  at 
work,  it  would  be  a  great  blessing  :  there  would  be  joy 
among  all  the  idle  boiler,  steam-engine,  brass-plate  and  iron 
rail  and  bar  makers,  as  well  as  all  the  miners  and  smelters 
in  the  land. 

0.  S.  B.  Your  greenbacks  would  not  help  you,  if  they 
were  issued,  and  your  silver  would  only  cause  inflation. 
It  would  also  be  an  act  of  repudiation  on  the  part  of  the 
general  government :  it  has  no  right  to  issue  cheap  money 
to  pay  debts  with. 

N.  S.  B.     You  are  right,  Mr.  O.  S.  B.,  in  saying  that  an 
issue  of  greenbacks  would  help  nobody,  but  you  are  wrong 
about  silver.   It  is  highly  inexpedient,  I  admit,  for  the  general 
government  to  coin  at  this  time  any  more  silver  than  will 
be  needed  for  subsidiary  use  on  a  return  to  specie  payments, 
and  the  amount  that  will  be  needed  for  that  purpose  will 
depend  upon  the  exclusion  or  non-exclusion  of  small  notes  : 
small  notes  would  be  well  enough,  if  a  proper  banking  re- 
serve were  always  kept.     In  Great  Britain,  in  consequence 
of  the  exclusion  of  notes  below  five  pounds  and  the  absence 
of  all  gold   coins  below  the   half-sovereign,  a   much    larger 
amount  of  silver,  in  proportion  to  the  whole,  is  requii-ed  in 
the  circulation   than   has  been  the  case  with  us.     What  is 
called  the  silver  question  in  the  United  States  has  now  no 
practical  importance  whatever.     While,  however,  it  has  no 
practical,  it  is  in  point  of  science  of  the  very  highest  impor- 
tance, because  it  shows  so  clearly  the  absence  of   all  true 
science  in  the  mercantile  theory  of  money,  which  has  been 
universally  maintained  hitherto.     The  question  has  no  prac- 
tical  importance,  because   it   is  impossible    to  coin  enough 
silver,  at  any  ratio,  to  drive  out  gold  entirely  before  converti- 
bility of  government  and  bank  debt  is  restored  ;  and  after 
return  to  convertibility,  until  gold  is  driven  out,  all  silver 
and  gold  dollars  and  multiples  of  gold  dollars  must  exchange 


MONETARY   AND   INDUSTRIAL  FALLACIES.  9 

at  par  or  at  least  very  near  par.  So  long  as  gold  remains 
it  will  be  the  "  Standard,"  because  there  will  be  a  standard 
impossibility  of  expelling  it  until  there  is  silver  enough  to 
take  its  place.  It  would  require  more  than  double  the  mint 
power  we  have  to  coin  silver  enough  to  drive  out  the  gold, 
even  if  holders  of  bullion  would  bring  it  to  the  mint  as  soon 
as  we  should  need  it,  to  redeem  with,  and  then  nothing  but 
free  coinage  of  all  silver  bullion  brouglit  to  the  mint  for 
that  purpose,  or  the  purchase  at  market  rates  and  coinage 
on  the  part  of  government  of  all  the  silver  offered  for  sale, 
could  have  the  effect  of  expelling  gold.  Such  a  coinage 
need  not  be  expected,  if  authorized,  until  after  a  return  to 
convertibility  under  gold,  because  silver  would  probably  rise 
too  rapidly  to  allow  it  to  take  place.  After  a  return  to 
convertibility  under  gold,  moreover,  it  will  become  manifest 
to  all  that  the  United  States  ought  to  adhere  to  gold  until 
a  general  monetization  of  both  silver  and  gold  can  be  agreed 
upon,  so  as  to  make  the  barter  rate  between  them  stable. 

0.  S.  B.  What  do  you  mean  by  the  barter  rate  between 
gold  and  silver  ? 

N.  S.  B.  I  mean  that  gold  and  silver  bullion  are,  as  bull- 
ion, commodities,  or,  as  one  might  say,  merchandise ;  but 
as  money,  they  are  not.  They  are,  even  as  money,  it  is 
true,  material  substances  designed  for  use  ;  but  for  all  prac- 
tical purposes  they  ai'e  not  commodities  in  the  sense  in 
which  other  things  so  called  are  such,  and  therefore  I  plainly 
and  honestly  say  so,  because  for  me  Political  Economy  is  not 
a  science  of  abstractions  :  I  aim  to  make  it  practical,  so  far 
as  I  have  anything  to  say  about  it.  All  money,  when  used, 
whether  paper  or  metal,  necessarily  resolves  itself  into  a 
series  of  abstract  units,  limited  in  number  by  the  metal  or 
the  paper  to  be  had,  and  by  the  metal  and  paper  actually 
used,  and  localized  by  the  paper  or  the  metal ;  but  in  order 
that  they  may  be  limited  as  well  as  localized  b}'  the  metal 
and  paper  employed  for  that  purpose,  it  is  essential,  while 
other  commodities  ean  be  used  without,  that  the  metal  be  di- 
vided into  pieces  by  weight  or  measure,  and  if  not  so  divided, 
it  is  essential  that  they  be  weighed  or  measured,  not  for  the 


10  MONETARY  AND  INDUSTRIAL  FALLACIES. 

purpose  of  ascertaining  the  quantity  of  metal  with  a  view 
to  actual  use,  but  the  number  of  standard  units  of  purchas- 
ing powers  the  metal  can  furnish.  Wheat  is  measured  by 
units  to  find  quantity ;  gold  is  measured  by  quantity  to  find 
units.  If  the  precious  metals  were  to  be  put  to  ordinary  use, 
intrinsic  qualities  would,  together  with  annual  product  and 
the  relative  demand,  determine  their  barter  value  as  reck- 
oned in  each  other,  like  iron  and  copper.  But  because  the 
principal  and  controlling  demand  for  them  is  to  coin  them 
into  money,  their  barter  relation,  as  metals,  is  controlled  by 
that  demand  and  that  use.  Hence,  if  silver  and  gold  were 
produced  in  equal  quantities  in  any  one  year,  —  say  fifty  mill- 
ions each,  —  and  the  next,  silver  to  the  amount  of  seventy- 
five  millions,  and  gold  to  the  amount  of  only  twenty-five 
millions,  should  be  produced,  the  price  would  not  be  deter- 
mined by  relative  demand  and  relative  mass  of  product  in 
either  year ;  and  if  there  were  five  thousand  millions  of  coin 
in  the  shape  of  silver,  and  five  thousand  millions  in  the  shape 
of  gold,  the  first  year,  and  enough  of  the  whole  metallic  prod- 
uct went  into  manufacture,  as  on  the  average  it  always  does, 
after  allowing  for  differences  in  the  amount  of  commerce  ac- 
complished with  each  metal,  to  keep  two  thirds  of  the  exist- 
ing total  of  each  in  coin,  and  one  third  in  commodity,  the  ratio 
of  each  metal  produced  for  coinage  the  first  year,  to  the  pre- 
viously existing  total  of  coin,  would  be  the  same  for  both 
metals,  —  that  is  to  say,  —  two  thirds  of  one  per  cent.  Aside 
from  any  intervening  increase  or  decrease  of  commerce,  the 
metallic  mass  in  coin  of  each  metal  might,  in  consequence, 
be  said  to  depreciate  in  respect  to  the  purchasing  power  of 
each  coin  in  it,  two  thirds  of  one  per  cent.,  after  the  lapse  of 
time  sufficient  to  distribute  the  increase  equally  where  com- 
merce had  gradually  distributed  the  total  coin  in  time  past. 
But  in  the  following  year  the  ratios  of  production  and  of 
quantities  ready  for  ordinary  manufacturing  and  coinage 
would  change :  that  of  silver  would  increase  to  one  per  cent., 
and  that  of  gold  decrease  to  one  third  of  one  per  cent,  of  its 
total  mass.  Now,  because  all  the  money  of  the  world,  includ- 
ing gold  and  silver  as  well  as  paper,  can,  speaking  practically 


MONETARY   AND   INDUSTRIAL   FALLACIES.  11 

—  that  is  to  say,  according  to  the  actual  fact  —  be  nothing 
more  or  less  than  a  series  of  valuing,  purchasing,  and  paying 
units,  if  gold  and  silver  were  equally  distributed  throughout, 
and  the  only  money  of  the  commercial  world,  the  constant 
tendency  would  be  to  an  equal  division  of  purchasing  power 
between  them.  This  equal  division  would  naturally  result, 
because  the  use  of  the  two  metals  as  money  everywhere  and 
equally,  would  tend  to  that  result ;  and  in  order  to  effect  this 
division,  such  a  disposition  of  the  metals  as  I  have  named 
must  take  place.  The  result  is  still  attained,  approximately, 
subject  to  two  causes  of  deviation  :  1st,  actual  deviation  from 
equal  division  of  commerce  between  the  two  metals,  —  one 
metal  being  used  in  some  countries  as  standard,  and  the 
other  in  others  ;  2d,  "  economy  "  of  the  metals,  when  used 
as  money  :  this  economy  produces  a  very  unequal  distribu- 
tion. Subject  to  these  causes  of  deviation,  the  tendency 
continues,  and  the  same  result  follows.  The  product  of 
silver,  the  second  year,  before  referred  to,  is  to  that  of 
gold  as  3  to  1 :  the  previous  year  it  was  as  1  to  1.  Were 
gold  and  silver,  when  used  as  money,  like  other  commod- 
ities, this  variation  in  the  relative  product  would  cause  a 
great  variation  in  relative  values,  but  the  variation  is  act- 
ually confined  to  the  difference  between  the  ratios  of  product 
to  mass. 

0.  S.  B.  How  do  you  know  this  to  be  a  fact  ;  and  if  you 
know  it  to  be  so,  how  do  you  account  for  it?  The  impres- 
sion of  holders  of  United  States  consols,  as  well  as  bankers 
in  Europe  and  the  United  States,  has  been,  and  still  is,  that 
great  loss  would  be  inflicted  upon  all  who  hold  debts  against 
the  citizens  or  the  government,  by  what  we  call  the  remone- 
tization  of  silver,  whether  the  coina2:e  be  limited  or  not.  So 
much  silver  would  be  thrown  upon  the  market  that  it  would 
become  cheap,  and  there  would  be  an  inflation. 

S.  L.  That  is  exactly  what  we  need  to  make  good  times, 
and  set  everybody  at  work  again.  Plenty  of  money  will 
give  plenty  of  wages,  if  I  can  reason  at  all,  and  make  good 
prices  for  everything ;  but  I  see  C.  B.  C.  coming,  the 
great  economist,  who  believes,  as  I  do  (for  I  have  read  some 


12  MONETARY  AND  INDUSTRIAL  FALLACIES. 

of  his  writings),  that  the  banks  are  a  monetary  nuisance  be- 
cause they  will  not  lend,  and  yet  they  have  the  privilege  of 
issuing  their  own  money  without  paying  anything  for  it. 
He  has  written  in  favor  of  what  is  called  Convertible-Bond 
Currency,  to  be  issued  b}'^  the  general  government,  in  order 
to  make  money  as  plenty  as  possible.  I  believe  his  idea  is 
that  when  this  money  is  too  plenty,  bonds  will  be  scarce ; 
and  when  it  is  too  dear,  and  hard  to  get,  bonds  will  be 
plenty' :  one  will  regulate  the  other,  like  the  different  parts 
of  a  steam-engine. 

0.  S.  B.    But  suppose  you  get  on  too  much  steam  ? 

S.  L.    Mr.  C.  B.  C.  will  explain  it  all  to  you. 

0.  S.  B.  I  suppose  he  will ;  but  O.  P.  E.,  the  cele- 
brated writer  on  the  Old  Political  Economy,  is  also  coming 
from  the  same  direction,  and  we  will  set  the  old  political 
economy  that  opposes,  against  the  old  pohtical  economy  that 
favors,  the  theory  of  convertible-bond  currency,  and  let  one 
mend  the  other. 

N.  S.  B.  It  looks  as  if  both  were  in  need  of  mending, 
when  writers  upon  political  economy  differ  upon  such  a  ques- 
tion. The  science  of  political  economy  is  that  of  production 
and  exchange.  The  principal  exchange,  if  there  were  no 
money,  would  be  made  directly  by  bartering  one  thing  for 
another:  to  make  the  exchanges  of  civilized  men,  and  in- 
deed of  some  savages,  an  auxiliary  exchange  is  required. 
Units  of  merchandise  are  continually  exchanged  for  units  of 
money.  Units  of  merchandise  are  limited  in  general  by  the 
power  to  produce,  as  well  as  by  the  power  to  consume  them  : 
all  merchandise  is  measured  by  units ;  it  cannot  possibly  be 
measured  in  any  other  way.  The  power  of  every  man  to 
produce  being  limited  independently  of  his  power  to  ex- 
change and  consume,  his  income  is  not  only  limited  by  his 
own  power  to  produce  himself,  but  by  the  productive  powers 
of  those  (the  whole  world)  who  exchange  with  him.  The 
power  of  producing  is,  therefore,  on  the  average,  subordinate 
to  the  power  of  exchanging  on  the  average.  Hence,  it  is 
certain  that  harmony  of  production  is  essential  to  harmony 
of  consumption  :  excess  in  any  quarter  is  the  result  of  mis- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  13 

applied  energy.  The  constant  tendency  must,  it  is  true,  be 
to  an  average  :  but  although  all  human  movement,  as  action 
and  reaction,  results  in  average  harmony  as  a  whole,  excess 
and  defect  are  always  found  now  and  then,  and  here  and 
there,  in  time  and  place.  It  is  the  absence  of  everything 
practical  in  what  is  called  Political  Economy,  —  the  assump- 
tion that  an  abstract  average  is  one  that  appears  in  the 
shape  of  an  every-day  verity,  —  in  the  market,  the  shop,  and 
the  store,  which  will  demonstrate  by  a  reductio  ad  absurdum 
the  falsity  of  every  argument,  that  old  political  economy 
opposing,  can  bring  against  old  political  economy  sustaining, 
—  the  theory  of  convertible-bond  currency.  Inasmuch  as 
O.  P.  E.,  as  well  as  C.  B.  C,  both  believe  and  maintain 
that  there  can  be  no  overproduction  in  any  quarter  (not  even 
in  relative  necessaries),  no  production  of  any  kind  can  be 
stimulated  too  much,  and  for  the  same  reason  there  cannot 
be  too  much  money  loaned  or  paid  out  for  labor  anywhere. 
There  being  no  overproduction,  every  man  sells  all  he  pro- 
duces, and  pays  his  debts  to  banks  and  bill  and  note  bro- 
kers regularly ;  and  as  Adam  Smith  testifies  of  the  Scotch 
banks  of  issue  of  his  time,  the  pond  called  the  reserve  is 
kept  at  an  even  average,  through  the  equality  of  volume  of 
the  exhausting  and  supplying  streams.  This  equality  results 
from  equality  in  volume  of  the  daily  real  exchanges  which 
support  labor  and  capital  within  short  averages  :  there  being 
perfect  harmony  in  the  principal,  there  must  be  a  resulting 
harmony  in  the  auxiliary  exchange.  Upon  this  theory,  if 
true,  the  more  money  actually  loaned,  the  better  ;  but  let 
us  hear  what  O.  P.  E.  and  C.  B.  C.  have  to  say. 

*S'.  L.  I  am  glad  to  hear  you  say  so  much  in  favor  of  Mr. 
C.  B.  C.'s  great  arguments. 

JV!  S.  B.  You  are  mistaken  :  I  think  his  arguments  quite 
absurd  ;  but  inasmuch  as  he  honestly  believes  that  there  can 
be  no  overproduction,  he  is  logical  in  maintaining  that  pro- 
duction of  all  kinds  ouorht  to  be  stimulated  to  the  hifrhest 
degree  by  loaning  as  much  money  as  possible.  At  the  same 
time,  Mr.  O.  P.  E.  affirms,  likewise,  in  his  book,  that  there 
can  be  no  overproduction,  and  cites  the  writers  who  have 


14  MONETARY  AND  INDUSTRIAL  FALLACIES. 

preceded  him  as  proof.  C.  B.  C,  therefore,  has  the  advan- 
tao-e  :  but  do  not  misunderstand  me  :  what  I  affirm,  and  all 
that  I  affirm  in  respect  to  the  coming  dispute  between  O.  P. 
E.  and  C.  B.  C.  is,  that  the  former  is  esto2)ped  from  contro- 
vertino-  C.  B.  C.'s  absurd  scheme,  and  will  continue  to  be 
estopped,  until  he  gives  up  M.  J.  B.  Say's  theory  of  produc- 
tion, and  learns  fully  the  lesson  of  the  conventional  and 
credit  character  of  all  money. 

*S'.  L.    You  are  getting  too  high  for  me.     Here  is  Mr.  C. 

B.  C,  who  can  understand  you  better  than  I  do.  I  must 
leave  in  search  of  work. 

0.  S.  B.  I  must  also  leave :  here  is  Mr.  O.  P.  E.,  who 
will  take  my  place  and  answer  you,  Mr.  N.  S.  B.,  as  well  as 

C.  B.  C.  himself.     He  will  do  it  better  than  I  can. 

C.  B.  0.  Good  morning,  Mr.  O.  P.  E.  :  what  question 
were  you  and  Mr.  O.  S.  B.  discussing  ?  You  and  I  are  old 
acquaintances,  but  I  have  not  had  the  pleasure  of  an  intro- 
duction to  Mr.  N.  S.  B.  before.  Mr.  O.  S.  B.  I  have  known 
for  a  long  time. 

0.  P.  E.  I  have  just  come,  like  yourself.  I,  like  you, 
have  just  made  the  acquaintance,  by  a  formal  introduction 
only,  of  Mr.  N.  S.  B.  He  is  the  only  one  here  to  answer 
your  question. 

N.  S.  B.  We  were  discussing  the  question  of  money.  I 
was  endeavoring  to  show  that  all  money,  including  gold  and 
silver,  must  be  taken  out  of  the  category  of  ordinary  com- 
modities, if  we  desire  to  understand  its  true  nature  and  use, 
and  until  these  are  understood,  it  is  but  irony  to  talk  about 
the  science  of  political  economy  even  as  respects  the  produc- 
tion and  exchange  of  the  whole  commercial  world  ;  still  less 
as  respects  the  industry  and  commerce  of  such  nations  as 
Great  Britain  and  the  United  States. 

0.  P.  E.  Money  is  money,  and  credit  is  credit,  without 
any  particular  reference  to  the  time  when,  or  the  place 
where,  they  are  used  ;  so  of  industry  and  commerce. 

C.  B.  C.  You  are  right  there,  Mr.  O.  P.  E.,  although  I 
differ  from  you  very  much  as  to  the  quantity  of  money 
American  producers  need,  and  also  the  quantity  of  protec- 


MONETARY   AND   INDUSTRIAL  FALLACIES.  15 

tion  tbey  ought  to  have.  I  want  to  give  them  abundance  of 
each,  but  you  would  deprive  them  of  both.  As  to  Mr. 
N.  S.  B.J  he  seems  to  have  new  opinions  of  some  kind,  and 
I  am  inclined  to  think  he  must  agree  with  me,  for  American 
industry  certainly  ought  to  be  sustained  in  preference  to 
British,  and  how  can  you  do  it,  without  a  discriminating 
tax  imposed  upon  British  goods  sent  here  by  foreign,  or  im- 
ported by  American  merchants  ?  That  end  accomplished, 
you  must  furnish  the  American  manufacturer  abundance  of 
money  so  that  he  can  set  all  the  now  idle  hands  at  work. 
If  we  had  been  so  fortunate  as  to  have  had  a  finance  minis- 
ter of  my  opinions  in  1869  instead  of  that  old-fashioned 
banker  Mr.  McCulloch,  who  nearly  ruined  American  in- 
dustry by  a  contraction  as  powerful  as  the  hug  of  the  great 
Russian  bear,  there  would  not  have  been  a  single  furnace 
closed,  nor  could  there  have  been  a  single  hand  itlle. 

0.  P.  E.  There  is  some  poetry  in  your  political  economy, 
at  least,  Mr.  C.  B.  C.  You  have  been  talking  about  two 
things  in  respect  to  which  we  disagree.  You  believe  in  pro- 
tection :  I  scout  it  as  a  practical  absurdity :  you  believe 
money  is  not  plenty  enough  ;  I  believe  it  is  too  plenty. 
You  believe,  as  I  do  not,  that  the  general  government  ought 
to  issue  more  currency,  with  a  convertible  bond,  and  thus 
get  rid  of  the  banks.  When  money  becomes  too  plenty,  at 
those  seasons  when  but  little  is  needed,  vou  would  allow  the 
holders  to  exchange  it  for  bonds,  and  when  more  money  is 
needed  you  would  allow  bond-holders  to  exchange  the  bonds 
for  currency.  The  general  government  would  then  pay 
interest  on  deposits  instead  of  the  banks,  with  this  resulting 
benefit,  as  you  call  it,  to  tax-payers  ;  that  is  to  say,  the  country 
at  large  :  the  general  government  would  pay  interest  gratui- 
tously, whereas  banks  are  compensated  by  the  use  of  the 
money  deposited.  On  the  other  hand,  wliile  you  and  I  differ 
upon  these  two  subjects,  we  agree  entirely  upon  two  others. 
You  believe,  as  I  do,  that  there  is  not  and  cannot  be  such  a 
thing  as  overproduction.  You  carry  the  doctrine  a  little  fur- 
ther than  I  do,  perhaps,  because  facts  compel  me  to  admit 
that  there  has  been  and  still  is  a  glut  of  some  particular 


16  MONETARY  AND   INDUSTRIAL   FALLACIES. 

commodities,  altliougli  there  is  no  such  thing  as  overproduc- 
tion. If  any  man  pretends  to  assert  that  there  is  or  can  be 
such  a  thing,  after  reading  M.  J.  B.  Say's  demonstration  to 
the  contrary,  and  pretends  to  bring  forward  facts  to  prove 
his  assertion,  so  much  the  worse  for  his  pretended  facts.  All 
the  world  cannot  make  me  believe  that  there  are  any  facts, 
when  rightly  understood,  to  maintain  such  an  assertion,  for 
M.  Say's  demonstration  proves  in  advance  that  there  can  be 
no  such  facts.  The  other  thing  that  you  and  I  agree  about, 
Mr.  C.  B.  C.,is  money,  with  the  exception,  perhaps,  of  silver. 
We  agree  as  to  what  money  is,  but  you  are  in  favor  of  silver 
coinage,  if  you  can't  have  the  convertible-bond  currency; 
I  am  opposed  to  it,  for  the  same  reason  that  you  favor  it. 
We  both  agree  that  it  will  make  money  more  plenty,  but  I 
call  it  a  silver  inflation  ;  you  call  it  a  greater  abundance  of 
money. 

C.  B.  C.  I  am  in  favor  of  silver,  certainly,  if  I  can't  have 
the  convertible-bond  currency.  That  currency  would  nerve 
the  hand  of  labor,  annihilate  the  odious  tyranny  of  bank 
capital,  and  bring  again  prosperity,  which  we  have  not  seen 
since  that  terrible  contraction  of  Mr.  McCulloch  in  1869  ; 
but  if  we  can't  get  that  boon,  let  us  make  money  as  plenty 
as  possible  by  coining  silver. 

0.  P.  E.  I  can't  agree  with  you  about  silver.  1  must 
confess  it  shocks  me  to  think  of  the  inflation  the  coinage  of 
silver  and  making  it  the  standard  woukl  cause.  It  is  a  drug 
now  by  the  side  of  our  inconvertible  paper,  although  it  is 
almost  a  year  before  the  time  fixed  for  specie  payments. 
You  think  there  can't  be  too  much  currency.  I  think  there 
can,  and  I  believe  that  the  immense  issues  of  inconvertible 
promises,  unfulfilled  as  those  promises  have  been,  caused  the 
speculative  era  which  culminated  in  1873.  It  was  specula- 
tion, not  overproduction.  Wlien  paper  promises  are  con- 
vertible into  actual  commodities  in  the  shape  of  gold  dol- 
lars, there  is  no  room  for  speculation  by  the  aid  of  paper 
currency :  all  the  speculation  which  then  takes  place  comes 
from  credit.  It  makes  no  difference  what  the  credit  is, 
whether  bank,    mercantile,   or   any  other   form   of   credit. 


MONETARY   AND   INDUSTRIAL   FALLACIICS.  17 

Checks,  promissory  notes,  bills  of  exchange,  credits  and 
debits  on  merchants'  books  and  bank  books,  are  all  one  and 
the  same  thing.  There  is  only  one  kind  of  credit :  it  is 
ridiculuus  to  make  any  distinctions.  All  the  great  trans- 
actions of  commerce,  national  as  well  as  international,  are 
conducted  by  means  of  credit;  and  as  nothing  but  credit  is 
used,  it  is  simply  barter.  If  gold  is  paid  out,  —  for  we 
must  now  exclude  silver,  —  it  is  a  case  of  barter  of  one  com- 
modity for  another  commodity,  althougli,  in  order  to  get  the 
article  he  wants,  the  man  who  gets  the  gold  must  barter  it 
for  that  article.  This  makes  double  barter  where  gold  is 
used,  and  single  barter  where  bank  or  any  other  kind  of 
credit  is  used.  There  can  be  no  speculation  through  the 
use  of  gold  or  convertible  notes,  for  these  are  employed,  for 
the  most  part,  in  retail  transactions;  but  when  it  comes 
to  the  wholesale,  which  precede  the  retail  transactions,  then 
comes  speculation,  and  its  sequence,  unproductive  invest- 
ment. 

C.  B.  C.  I  suppose  you  are  right  about  commodity, 
barter,  double  barter,  and  speculation.  Your  political  econ- 
omy and  mine  are  alike  respecting  these  topics,  but,  for  some 
reason  or  other,  we  don't  exactly  agree  about  industry  and 
production.  We  both  say  that  there  can  be  no  overproduc- 
tion, and  I  will  not  admit  for  a  single  moment,  although 
every  granary  is  bursting,  that  there  can  be  even  a  glut ; 
but  you  are  not  willing  to  make  money  plenty,  so  that  all 
men  can  work.  It  seems  to  me,  you  are  not  consistent,  but 
possibly  there  may  be  some  way  to  explain  the  apparent  in- 
consistency. I  think  it  must  lie  in  this,  that  you  think 
laborers  would  get  a  promise  of  a  commodity  in  the  shape 
of  gold  when  they  receive  convertible  notes  for  their  work, 
but  only  credit,  when  they  get  inconvertible  notes.  There 
may  be  something  in  that,  but  I  am  in  favor  of  the  notes, 
because  I  know  the  laborers  will  be  glad  to  get  them.  What 
say  you,  Mr.  N.  S.  B.  ? 

N.  S.  B.  I  am  charmed  with  everything  I  have  heard  on 
both  sides.  I  have  heard  it  many  times  before,  I  admit,  but 
I  never  heard  the  same  subjects  treated  so  logically.     Each 

2 


18  MONETARY  AND   INDUSTRIAL  FALLACIES. 

particular  remark  was  the  logical  sequence  of  the  one  pre- 
ceding it.  Nevertheless,  I  differ  from  you  in  your  prem- 
ises. Money  is  not  a  commodity  in  the  ordinary  sense  of 
that  word,  because  as  money,  its  value  is  conventional :  its 
value  lies  not  in  itself,  but  in  what  it  exchanges  for.  Were 
it,  even  in  the  shape  of  gold,  an  ordinary  commodity,  then, 
undoubtedly,  an  exchange  of  a  load  of  forty  bushels  of  wheat 
by  a  farmer  for  five  gold  eagles  would  be  a  barter  of  the 
wheat  for  the  gold  eagles ;  and  when  the  farmer  exchanged 
the  eagles  for  his  half-season's  supply  of  dry  goods  and  gro- 
ceries, he  would  barter  the  former  precisely  as  he  would  a 
cow,  for  the  latter,  and  thus  Mr.  O.  P.  E.'s  assertion  would 
be  literally  true.  I  have  no  doubt  his  premises  are  false  by 
reason  of  not  containing  the  whole  truth,  but  his  argument 
is  remarkably  clear.  If  his  premises  were  true,  he  would 
also  be  right  in  respect  to  silver.  If  silver  were  used  only 
as  an  ordinary  commodity  for  manufacture,  like  copper  or 
platina,  the  quantities  put  upon  the  market  —  demand  re- 
maining the  same  —  would  alone  determine  its  exchangeable 
value  as  a  commodity ;  but  the  value  of  silver  as  well  as 
gold,  in  its  character  of  money,  depends  upon  the  total 
already  existing  as  money,  and  the  ratio  of  the  quantity 
placed  upon  the  market  through  production  and  demonetiza- 
tion to  the  total  existing  as  money  in  the  shape  of  coin  after 
the  demonetizations  have  had  their  full  effect.  Thus  the 
abandonment  of  free  coinage  of  silver  in  Germany  and  the 
Latin  Union,  and  the  restriction  of  its  coinage  there  in  future 
to  subsidiary  uses,  will  ultimately  diminish  the  whole  mass 
of  silver  coin  in  those  countries,  by  the  difference  between 
the  mass  as  it  was  or  would  be  under  free  coinage  and  the 
mass  as  it  will  be  under  subsidiary  coinage.  The  mass  of 
the  latter  will  depend  very  much  upon  the  size  of  the  small- 
est unit  of  paper  money  or  gold.  Suppose  the  mass  to  be 
reduced  ultimately  in  those  countries  seventy-five  and  in  the 
commercial  world  ten  per  cent. ;  this  would  change  the  ratio 
of  all  the  silver  going  into  coin  by  one  tenth  approximately, 
if  the  miners  of  silver  continued  to  mine  as  they  would  have 
done  had  the  mass  of  silver  coin  not  been  reduced  by  one 


MONETARY   AND   INDUSTRIAL  FALLACIKS.  19 

tenth.  If  they  continued  so  to  mine,  a  proportionately  larger 
quantity  of  silver  than  before  the  demonetizations  —  that  is 
to  say,  one  tenth  of  all  that  had  gone  into  coinage  before  — 
would  tro  into  manufacture  after  the  demonetizations.  This 
would  actually  be  the  ultimate  effect,  assuming  production 
to  continue  as  before  ;  but  it  would  not.  It  would  fall  off. 
Silver  would  rise  as  its  production  fell,  and  gold  would  rise 
also.  These  changes  would  be  so  slow,  however,  that  nobody 
would  know  when  they  were  taking  place.  Meantime  should 
the  United  States  remonetize  silver  freely  after  a  return  to 
convertibility,  —  for  it  is  useless  to  attempt  it  before  that 
time,  —  a  coinage  at  the  rate  of  sixteen  pounds  of  silver  for 
one  of  gold,  while  driving  out  all  the  gold,  would  probably 
carry  silver  bullion  up,  so  that  sixteen  and  one  half  pounds 
of  silver  would  be  worth  one  pound  of  gold  in  London, 
leaving  the  United  States  rate  only  three  per  cent,  short  of 
the  London  rate.  There  is  no  inflation,  but  only  great  folly 
in  this  plan. 

0.  P.  E.  How  do  you  account  for  silver  being  a  drug 
now  ? 

N.  S.  B.  Upon  the  same  principle  by  which  I  account  for 
the  facts  I  have  already,  and  many  others  which  might  be, 
stated.  It  is  because  the  value  of  all  money  is  conventional, 
and  all  money,  even  gold,  necessarily  resolves  itself  into  a 
series  of  units  whose  purchasing  power  —  in  other  words,  ex- 
changeable value  —  is  inversely  as  the  number  employed  to 
make  a  valuation  precedent  to  purchase  and  payment.  The 
whole  mass  of  money  existing  is  therefore  in  the  shape  of 
units,  which  is  the  first  element  of  valuation  ;  the  second  is 
ratio  of  daily,  weekly,  monthl)^  or  yearly  increment  of  units  ; 
the  third,  as  between  materials  (the  metals  silver  and  gold) 
used  to  make  the  units,  is  actual  quantity  of  each  remaining 
for  coinage  after  the  demand  of  arts  and  manufactures  is 
satisfied,  without  any  regard  whatever  to  the  intrinsic  qual- 
ities of  the  two  metals,  —  e.  g.,  if  silver  and  gold  going  into 
coinage  were  to  change  places  in  weight,  values  would  change 
accordingly  ;  the  fourth  is  the  number  of  units  offered  and 
actually  paid  for  a  fixed  number  of  units  of  any  particular 


20  MONETARY  AND   INDUSTRIAL  FALLACIES. 

commodity  at  each  sale,  and  the  average  resulting  from  all 
the  sales.  If  silver  coin  is  now  a  drug,  it  is  eitlier  because 
there  is  more  than  enough  for  subsidiarv  uses,  or  because  the 
government  has  been  so  improvident  as  to  coin  "  trade  dol- 
lars," or  for  both  these  reasons. 

0.  P.  E.    Can  the  ratio  between  gold  and  silver  be  fixed 
by  law  ? 

N.  S.  B.    It  can,  undoubtedly.     The  United  States  fixed 
the   conventional   value  of  silver  for  free  coinage  in  their 
mints  at  sixteen  pounds  of  silver  to  one  of  gold.     They  put  it 
lower  by  half  a  pound  for  every  thirty-one  half-pounds  than 
the  European  mints  had  put  it.     The  result  was,  that  there 
was  a  profit  in  sending  off  all  the  silver  coin  in  the  United 
States  and  bringing  back  gold  to  be  coined  in  our  mints  to 
take  its  place  in  the  circulation.     Here  is  a  fact,  if  you  will 
only  allow  yourself  to  give  it  due  weight,  which,  for  all 
practical  purposes,  must  convince  j^ou  that  gold  and  silver, 
as  money,  have  only  conventional  value  —  intrinsic  qualities 
being  discarded  —  with   as  much  certainty  as  j^ou  can  be 
convinced  of  anything.    If  the  departing  silver  coin  had  been 
an  ordinary  commodity,  no  government  could  have  fixed  its 
value  in  relation  to  gold  so  as  to  make  it  profitable  either  to 
send  it  away  or  to  keep  it  at  home,  for  no  government  can 
fix  the  value  of  any  commodity.     Because  it  was  not  a  com- 
modity in  the  ordinary  sense,  and  as  money  only  a  series 
of  valuing,  purchasing,  and  paying  units,  it  went  abroad  pre- 
cisely as  Bank  of  England  notes,  if  they  were  circulating  in 
this  country  at  a  discount,  would  be  sent  hence  to  where 
they  are  at  par.     For  all  practical  purposes,  the  Bank  of 
England  notes  are  just  as  much  ordinary  commodities,  in 
the  case  supposed,  as  the  silver,  and  it  is  for  practical  pur- 
poses only  that  the  science  of  what  is  called  Political  Econ- 
omy ought  to  be  studied  or  taught.     As  an  abstract  science, 
I,  for  one,  have  no  use  for  it.     To  understand  the  true  uses 
of  gold  and  silver  in  their  character  of  money,  you  must  give 
up  the  idea  of  commodity,  and  therefore  end  in  itself,  instead 
of  means  to  an  end  only,  barter  and  double  barter. 

C.  B.  C.   Your  remarks,  Mr.  N.  S.  B.,  are  quite  interest- 


MONETARY   AND    INDUSTRIAL  FALLACIES.  21 

ing,  and  I  consider  them  important,  because  they  corrob- 
orate my  opinions  about  hibor  and  currency  ;  for  as  we  have 
not  sufficient  gold  and  silver  to  furnisli  us  all  the  units  we 
need,  we  must  have  paper,  and  I  affirm  my  belief  that  we 
have  not  half  enough. 

0.  P.  E.  He  has  hit  your  theory  squarely,  Mr.  N.  S.  B. 
He  and  those  who  think  with  him  have  always  said  there 
was  not  enough  of  silver  and  gold  to  transact  the  business  of 
the  world,  and  that  unless  there  could  be  enough  furnished 
to  supply  everybody,  paper  must  be  resorted  to  in  much 
larger  amounts. 

C.  B.  C.  Precisely  so,  Mr.  O.  P.  E. ;  you  and  I  agree 
now.  I  always  said,  it  is  but  mockery  to  assert,  in  reply 
to  labor's  demands,  that  we  have  gold  and  silver  enough 
to  answer  our  needs.  There  is  a  power  in  paper  money, 
if  we  could  only  have  enough  of  it.  See  what  an  enor- 
mous circulation,  in  gross  and  per  capita^  France  has,  com- 
pared with  ours.  It  must  have  been  more  than  double  a 
few  years  ago,  and  even  now  it  is  much  larger.  We  ought 
to  have  as  much  as  France,  and  in  fact  a  great  deal  more, 
because  business  is  more  active  here.  In  fact,  if  I  may  use 
such  a  word,  I  might  say  we  are  starving,  not  for  bread, 
but  for  currency.  I  am  in  favor  of  protecting  American  in- 
dustry with  plenty  of  currency  as  well  as  tariff.  Of  what 
use  is  tarilT,  wlum  we  are  dying  for  want  of  currency  ? 

0.  P.  E.  You  are  out  of  my  circle  now,  Mr.  C.  B.  C,  al- 
though we  are  both  economists,  and  agree  in  the  main  point, 
that  there  can  be  no  overproduction.  When  you  abandon 
the  theory  that  gold  coin  is  a  commodity,  and  the  end  in  it- 
self of  all  redemptions,  you  are  at  sea  without  rudder,  chart, 
or  compass.     I  must  leave  you  to  navigate  for  yourself. 

N.  S.  B.  Your  remarks,  gentlemen,  are  quite  amusing  to 
me.  Mr.  C.  B.  C.  is  willing  to  give  up  the  commodity  the- 
ory if  he  can  only  have  currency  enough  ;  and  i\Ir.  O.  P.  E. 
thinks  redemption  of  paper  currency  useless  upon  any  other. 
I  am,  to  use  a  hackneyed  term,  more  conservative  than  either 
of  you.  Mr.  C.  B.  C.  thinks  that  money  makes  industry, 
and  he  thoughtlessly  takes  it  for  granted  that  industry  alone 


22  MONETARY  AND   INDUSTRIAL   FALLACIES. 

makes  commerce,  and  commerce  consumers.  I  say  thought- 
lessly, because  careful  observation  and  right  reasoning  would 
make  him  doubt  the  truth  of  those  conclusions.  Why  should 
all  the  workers  at  trades  in  the  United  States  be  set  to  work, 
if  all  the  product  cannot  be  sold  ?  But  this  question  is  not 
well  put,  because  misleading.  The  proper  question  is :  why 
waste  breath  in  talking  about  setting  more  men  at  work, 
when  it  is  impossible?  C.  B.  C.  seems  to  think  there  is 
more  enterprise  in  money  than  in  men  ;  that  money  builds 
factories,  furnaces,  and  mills,  and  makes  iron  and  cloth ;  that 
money  behind  man,  and  not  man  behind  money,  is  the  actor. 
O.  P.  E.  is  right  in  objecting  to  the  issue  of  more  currency, 
and  insisting  by  implication  upon  a  speedy  return  to  conver- 
tibility ;  but  he  is  wholly  unable,  upon  the  commodity  the- 
ory, to  answer  C.  B.  C.'s  argument,  that  there  is  not  and 
will  not  be  enough  gold  in  the  United  States  to  answer  a 
quarter  of  the  actual  demand,  and  that  we  therefore  need 
large  supplies  of  good  paper. 

C.  B.  C.  You  are  right  there,  or  as  some  of  our  ready 
writers  express  it,  there  is  not  gold  enough  to  supply  us  all, 
and  therefore  we  need  abundance  of  paper. 

0.  P.  E.  The  commodity  theory  explains  everything  to 
my  satisfaction.  You  say  yourself,  the  power  of  producing 
is  limited,  and  hence  commodities  are  limited,  —  the  com- 
modity gold,  especially  :  if  paper  promises  are  always  con- 
vertible into  such  a  commodity,  there  is  a  sound  basis  of 
commodity  to  sustain  the  superstructure  of  credit. 

N.  S.  B.  You  are  misled  by  a  fallacy  of  words,  and  truth 
and  fact  demand  in  reply  great  plainness  of  speech.  There 
is  no  meaning  in  your  words  whatever.  Those  who  agree 
with  you  talk  about  gold  as  a  measure  of  value.  The  ex- 
pression is  misleading,  but  I  will  assume  it  to  be  correct.  If 
gold  in  banking  reserve  is  a  measure  of  value,  as  you  your- 
self are  estopped  from  denying,  how  can  it  measure  the 
value  of  the  commodities  exchanged  by  means  of  the  bank- 
ing credit  or  debt  —  whichever  term  you  choose  —  which  is 
passing  above  it  ? 

0.  P.  E.   No  writer  afifirms  that  it  does  measure  the  value 


MONETARY   AND   INDUSTRIAL  FALLACIES.  23 

of  the  commodities  exclianged  by  means  of  bank  debt  and 
credit,  and  customers'  debt  by  bill  and  note.  All  the  writ- 
ers —  myself  included  —  say,  that  clearings  take  place  with- 
out refertMice  to  banking  reserve  :  it  is  only  a  set-off  of  debts, 
when  reduced  to  its  simplest  terms.  Some  writers  think 
there  is  more  gold  kept  in  the  reserve  than  necessary  ;  but  I 
am  in  favor,  until  clearings  are  further  extended,  of  a  good 
reserve. 

N.  S.  B.  You  think,  therefore,  the  reserve  ought  to  vary 
with  the  retail  movements  of  merchandise  only,  and  not  in 
harmony  with  all  the  movements  of  commerce,  wholesale  as 
well  as  retail  ? 

0.  F.  E.  I  have  never  troubled  myself  about  those  mat- 
ters, except  so  far  as  to  learn  this  one  great  truth,  —  that 
deposits  arise  from  the  sales  of  commodities.  It  is  enough 
to  know  this.  Gold  is  only  wanted  as  a  commodity,  as  peo- 
ple want  wheat.  What  new  theory  have  you  about  gold  in 
the  reserve  ? 

N.  S.  B.  I  have  a  theory  founded  on  all  the  facts  of  the 
case,  and  I  have  thus  avoided  the  fallacy,  founded  on  a  few 
of  the  facts  only,  which  has  entrapped  you  and  your  friends. 
If  credit  answers  the  purpose  of  exchanging  commodities  by 
being  substituted  for  one  commodity,  gold  itself  accomplishes 
no  more.  But  the  credit  used  is,  while  in  the  form  of  a  book 
entry  or  a  bank-note,  but  an  abstract  unit  or  series  of  units, 
and  the  gold  for  all  practical  purposes  —  and  I  regard  these 
only  —  can  be  no  more.  Hence  the  true  theoi-y  about  gold 
in  the  reserve  is,  that  its  proper  function  is  one  of  limitation 
of  loans.  If  the  reserve  varies  as  bankers  choose  to  make 
loans  vary,  then  the  reserve  is  limited  by  loans,  instead  of 
loans  being  limited  by  the  reserve. 

0.  P.  E.  You  are  right :  banking  is  an  affair  of  credit 
entirely  ;  no  banker  can  do  business  without  a  variable  re- 
serve. His  business  varies,  and  his  reserve  must  vary.  Gold 
in  banking  reserve  is  only  needed  as  the  small  change  of 
commerce,  as  some  writers  say.  I  am  more  conservative 
than  the  rest  of  them,  for  I  am  in  favor,  for  the  present,  of 
a  good  reserve.     The  most  important  function  of  gold  in  re- 


24  MONETARY   AND   INDUSTRIAL  FALLACIES. 

serve  is  to  supply  retail  trade,  and  occasionally  redeem  bank- 
notes :   an  excess  of  convertible  notes  is  impossible, 

iV.  S.  B.  Without  knowing  it,  you  have  contradicted 
yourself  three  times.  You  say  deposits  arise  from  sales  of 
commodities  alone.  If  that  is  the  case,  bank  loans,  whicli 
create  all  the  deposits  to  be  found  over  and  above  reserve, 
are  never  used  to  pay  for  the  labor  that  creates  commodities, 
which  is  false,  as  you  yourself  will  at  once  admit,  because  it 
is  hardly  possible  for  you  to  deny  it.  Again,  commodities 
must  be  produced  before  they  can  be  sold,  and  sales  of  mer- 
chandise cause  an  equal  amount  of  production  of  merchandise 
to  take  place,  while  deposits  are  the  registered  cost  of  pro- 
dvicts,  held  in  first,  second,  and  to  some  extent  third,  or  even 
fourth  hands,  whicli  have  not  yet  found  consumers,  —  in 
other  words,  cash  buyers.  In  the  second  place,  you  say  mer- 
chandise at  wholesale  is  paid  for  by  units  of  bank  credit, 
which  are  not  controlled,  and  therefore  expand  and  contract 
without  reference  to  gold  in  the  reserve.  Hence,  according  to 
your  first  assertion,  these  units  must  be  controlled  in  volume 
by  the  units  of  merchandise  exchanged  at  wholesale  and  paid 
for  through  checks,  set-off,  and  clearing.  But  this  assertion 
is  contrary  to  the  fact,  for  the  volume  of  deposits,  which  is 
the  whole  volume  of  credit  and  reserve  units,  is,  as  you  now 
impliedly  admit,  determined  by  the  volume  of  production  as 
the  controlling  cause,  and  not  by  the  sale  of  what  is  produced. 
The  retail  transactions  of  commerce  are,  as  you  say,  made 
with  gold,  silver,  and  bank-notes,  which  are  limited  in  volume 
by  gold,  and  these  retail  transactions  take  place  in  a  consum- 
er's market.  But  it  is  absolutely  impossible  to  sell  by  the  gold 
standard  at  retail,  and  by  the  credit  standard,  uncontrolled 
by  gold,  at  wholesale.  This  involves  a  practical  absurdity 
on  the  money  side,  which  is  the  auxiliary  exchange.  It  is 
equally  absurd  on  the  side  of  the  principal  exchange,  —  that 
of  merchandise  ;  for  the  wholesale  transactions  are,  as  you 
admit,  now  regulated  in  volume  by  the  production,  and  the 
retail  by  the  consumption,  of  commodities.  Therefore,  as  I 
said  before,  your  remarks  involve  three  contradictions.  Be- 
cause production  is  the  source  whence  come  the  com  modi- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  25 

ties  sold  at  wholt'sale,  and  bank  loans  are  used  to  pay  for 
labor,  or  merchandise  whose  sale  causes  an  equal  amount  of 
production  to  take  place,  deposits  arise  from  production  and 
not  sales:   which  is  the  first  contradiction.     And  if  transac- 
tions at  wholesale  are  made  by  payments  in  units  of  credit, 
without  any  limitation  or  regulation  by  the  reserve,  the  re- 
tail transactions  in  consumers'  markets  must  take  place  in 
the  same  manner  as    shown  by  the  reductio  ad  absurdiun, 
and  yet  you  say  they  are  regulated  in  volume  by  reserve : 
this  is  the  second  contradiction.     In  the  next  place,  if,  as 
YOU  say,  the  volume  of   units  in  the  retail  transactions  is 
regulated  by  reserve,  that  in  the  wholesale  transactions  must 
necessarily  be,  by  the  same  reductio  ad  absnrdiim  ;  but  you 
affirm  that  it  is  not :  this  is  the  third  contradiction.     Here 
are  three  contradictions.     I  will  dispose  of  them  by  facts. 
Production  makes  deposits  ;  neither  clearings  nor  any  other 
banking  transactions  are  regulated,  as  they  ought  to  be,  by 
the  gold   in  the  reserve,  and  hence   retail  transactions,  ac- 
complished largely  by  gold,  silver,  and  bank-notes,  which,  as 
you  say,  move  continually  into  and  out  of  reserve,  without 
any  reference  to  wholesale  transactions,  and  therefore  pro- 
duction, must  nevertheless  necessarily  be  regulated  in  vol- 
ume by  that  of  the  wholesale  transactions  which   precede 
them.     Therefore,  the  volume,  not  of  gold  and  bank-notes, 
but  of  the  circulation  of  gold  and  bank-notes  used  in  retail 
transactions,  as  well  as  wholesale,  must  be  regulated  by  the 
volume   of    commodities   produced,   and  not  the   volume  of 
commodities  consumed.     The  expansion  of  circulation,  even 
of  gold,  is  regulated  by  the  labor  it  buys,  and  not  the  com- 
modities that  labor  sells.     Hence  the  steadiness  of  prices  and 
cheek  to  expansion  which  are  sought  through  convertibility 
must  be  lost  in  some  way  by  means  of  deposit  and  discount 
banking. 

C.  B.  C.  You  have  fairly  demonstrated  the  truth  of  what 
some  of  our  people  say,  that  there  is  not  gold  enough  to 
meet  the  demands  of  a  single  day.  Bankers  are  always  talk- 
ing about  their  reserve.  The  right  way  is  to  wind  up  the 
banks  and  let  the  general  government  issue  currency,  with 


26  MONETARY  AND   INDUSTRIAL  FALLACIES. 

a  reserve  of  convertible  bonds.  It  can  issue  just  as  many- 
bonds  and  just  as  much  paper  as  people  want,  without  being 
tied  up  by  a  niggardly  reserve.  You  talk  about  limitation  : 
that  is  the  very  thing  I  want  to  get  rid  of.  If  I  could  put 
a  financial  motto  on  the  breast  or  the  back  of  the  American 
eagle,  it  should  be  Greenbacks  and  Silver. 

0.  P.  E.  Your  argument,  Mr.  N.  S.  B.,  is  hard  to  an- 
swer. It  would  seem  as  if  you  must  be  right  about  the  cre- 
ation of  deposits,  and  retail  transactions  ;  but  what  can  you 
do,  except  to  buy  more  gold  ?  —  and  that  would  certainly  be 
expensive. 

N.  S.  B.  You  and  C.  B.  C.  misunderstand  me.  He  has 
no  conception  of  the  forces  at  work  behind  money.  He 
talks  as  if  he  considered  money  the  living  power,  and  pro- 
duction the  dead  weight  to  be  moved.  He  might  as  well 
proceed  and  maintain  that  the  mone}'^  in  Archimedes'  pocket 
could  easily  have  moved  the  world  without  fulcrum  or  lever, 
and  that  iron  will  always  turn  to  bread. 

C.  B.  C.  There  is  more  truth  in  what  you  say,  Mr.  N.  S. 
B.,  than  you  dream  of.  See  how  France  has  prospered  under 
all  her  burdens.  It  is  her  enormous  circulation  per  capita^ 
which  has  enabled  her  to  grow  rich  as  she  has  done  all  the 
time,  while  heavily  taxed.  If  this  does  not  prove  that  money 
makes  prosperity,  what  can  ?  The  more  paper  money  she 
had,  the  more  she  prospered. 

N.  S.  B.  It  is  not  the  money  that  controlled  the  people  of 
France,  but  they  controlled  the  money.  They  retired  their 
gold  and  silver  with  their  paper,  and  used  the  latter.  It  is 
the  quantity  of  circulation  and  volume  together  which  deter- 
mines production  and  prices,  and  not  volume  alone.  If  the 
banks  were  to  stop,  — if  you  choose  to  imagine  such  a  thing, 
—  how  could  the  general  government  do  the  business  ?  Pro- 
ducers could  not  get  money  of  the  general  government  with- 
out borrowing  it,  and  they  could  not  get  bonds  without  bor- 
rowing them  of  holders.  The  government  can't  go  into 
banking,  for  banking  is  a  trade  risk  in  which  the  bank's 
share  is  guarantied. 

C.  B.  0.    I  never  thought  of  that ;  but  still,  as  long  as  we 


MONETARY   AND   INDUSTRIAL   FALLACIES.  27 

have  the  case  of  France  before  us,  Greenbacks  and  Silver  is 
my  motto.  We  want  a  larger  per  capita  circulation,  at  all 
events. 

N.  S.  B.  What  we  want  is  a  duly  regulated  banking  re- 
serve. Gold  and  silver  would  have  distributed  themselves 
in  the  tracks  of  commerce  with  great  regularity,  had  not 
"economizing  expedients"  prevented.  We  must  not  think, 
with  the  buUionists,  of  disturbing  the  actual  distribution 
that  has  taken  place  by  the  use  of  metal,  or  notes  issued 
upon  a  deposit  of  metal,  dollar  for  dollar ;  but  we  need  to 
make  the  metal  we  shall  have,  after  a  return  to  converti- 
bility, do  us  the  most  good  possible  as  a  regulator  of  what 
Mr.  O.  P.  E.  calls  credit,  which  is  not  credit,  however,  but 
the  circulation  on  credit,  through  the  banks,  of  money  largely 
in  excess  of  consumers'  markets.  The  use  of  money,  under 
all  circumstances,  is  a  credit,  —  that  is  to  say,  a  conventional 
process.  When  its  circulation  is  not  largely  in  excess  of  that 
of  commodities  for  consumption,  it  may  be  called  the  cash 
circulation  ;  when  it  is  largely  in  excess,  it  may  be  called, 
with  emphasis,  the  credit  circulation  of  money.  There  is 
harmony  of  production  with  the  former,  as  in  France  ;  there 
is  discord  of  production  with  the  latter,  as  in  the  United 
States. 

0.  P.  E.  The  case  of  France  seems  to  explode  your  unit 
theory,  Mr.  N.  S.  B.,  for  why  should  the  money-holders  of 
France  have  retired  their  vast  total  of  gold  and  silver  if  they 
had  not  known  it  to  be  a  valuable  commodity,  and  therefore 
safer  to  keep  than  the  paper?  They  certainly  knew  that 
they  were  laying  by  something  of  intrinsic  value,  and  sub- 
stituting for  it  something  that  had  no  such  value. 

N.  8.  B.  Doubtless  they  thought  so,  and  they  did  w^hat 
all  people  do  to  a  greater  or  less  extent  in  such  cases.  The 
old  mercantile  theory  of  intrinsic  value  will  never  depart ; 
and  it  is  natural,  perhaps,  to  store  gold  and  silver  money 
under  similar  conditions,  as  one  would  plate  not  needed  for 
immediate  use.  The  persistence  of  this  idea  is  one  of  the 
elements  of  stability  in  the  prices  of  commodities,  where 
gold  and  silver  are  used  in  whole  or  part,  and  it  has  a  salu- 


28  MONETARY  AND   INDUSTRIAL  FALLACIES. 

tai-y  influence  in  counteracting  the  effects  of  the  irregularity  ; 

in  the  distribution  of  the  metals,  caused  by  "economizing  | 

expedients,"  which  would  arise  if  they  were  not  considered  I 

by  the  holders  to  be  at  the  same  time  both  money  and  ordi-  ^ 

nary  commodities.     Were  they  considered  as  money  alone, 
and  not  at  the  same  time  valuable  commodities,  they  would 
be  more  readily  parted  with  ;  there  would  be  less  economy, 
and  therefore  less  steadiness  of  prices.     The  popular  idea  of 
steadiness  and  soundness  in  metallic    money  is  founded  on 
facts ;  but  to  produce  the  steadiness,  all  the  complex  elements 
conspire,  and  none  of  them  should  be  ignored  by  the  man 
who  seeks  to  establish  a  science.     Absolute  truth,  however, 
is  one  thing ;  popular  fallacies  are  another.     The  fallacy  in 
this  case,  although  contrary  to  absolute  fact,  is   an  impor- 
tant element  in  producing  that  steadiness  which  is  the  most 
important  of  all  relative  facts  iit  the   use  of  money.      If 
the  gold  and  silver  money  of  France  were  governed  by  the 
common  law  of  commodities,  that  country  having  ordinarily 
about  twice  as  much  as  Great  Britain,  and  more  than  three 
times  as  much  as  the  United   States,  its  value  in  France 
ought  to  be  much  less  than  in  England  or  the  United  States. 
In  point  of  fact,  however,  it  is  worth  more  in  France  than 
the  economized  metal  in  Great  Britain  or  the  United  States. 
Hence  we  hear  a  great  deal  about  exports  of  gold  from  the 
United  States,  when  bank-notes  have  caused  an  "  inflation." 
Gold,  undoubtedly,  has  left  the  United  States  in  large  quan- 
tities of  late  years,  but  some  of  it  has  remained  ;  and  when 
bank-notes    are  convertible,  it   is  only  sent  abroad    to  pay 
actual  balances,  although    by  the    expansion   of    circulation 
caused  by  loans,  its  exchangeable  value  is,  together  with  that 
of  bank-notes,  very  much  reduced,  and  both  are  on  a  mutual 
par.     But  bank-notes    are    units  only,  and  gold,  if  its  ex- 
changeable value  thus  rises  and  falls  with  the  paper,  can  be 
no  more. 

0.  P.  E.  I  might  as  well  undertake  to  deny  the  truth  of 
a  mathematical  demonstration,  if  you  continue  to  argue  in 
this  style,  but  there  is  an  instinct  which  is  constantly  rising 
up  in  me  and  telling  me  not  to  give  way.     I  can't  answer 


MONETARY   AND   INDUSTRIAL   FALLACIES.  29 

you,  but  there  is  something  that  tells  me  it  is  all  sophistry, 
like  Bishop  Berkeley's  discussions  upon  substance.  You 
say  that  a  material  substance  —  one  of  the  most  solid  of 
all  substances  known  —  is  but  an  idea,  —  a  mere  abstract 
series  of  units  which,  put  in  the  denominator  of  a  ratio,  give 
price  ;  and  when  made  to  change  place  with  the  units  of 
goods  in  the  numerator,  give  purchasing  power.  But  here 
comes  Mr.  O.  S.  B.,  who  has  had  time  during  our  long  dis- 
cussion to  go  to  his  bank  and  spend  an  hour  or  more. 

C.  B.  C.  And  here,  too,  comes  j\Ir.  S.  L.,  who  has  had 
time  to  find  out  that  there  is  no  work  for  him  in  this  neigh- 
borhood. 

0.  S.  B.  You  are  still  talking,  I  notice.  I  hope  you  have 
arrived,  during  my  absence,  at  something  practical.  I  hate 
theories.  Why  can't  you  writers  turn  political  economy 
into  something  that  will  interest  people  ?  I  believe  it  is 
generally  voted  a  bore,  although  it  involves  the  consideration 
of  a  thing  we  never  tire  of  pursuing.  There  must  be  some- 
thing in  the  way  you  treat  it,  that  makes  it  so  repulsive. 

S.  L.  I  hope  your  time  has  not  been  lost,  Mr.  C.  B.  C, 
in  arguing  the  cause  of  .us  poor,  starving  people.  I  am  not 
a  communist,  although  you  could  not  blame  me  for  turning 
one,  nor  am  I  a  vagrant :  all  I  insist  upon  is  the  right  to 
honest  work,  and  I  ought  to  have  it.  We  could  all  have 
work  in  one  month,  if  the  government  would  go  to  printing 
greenbacks. 

C.  B.  C.  My  poor,  honest  fellow,  the  government  that 
starves  its  laboring  men  by  short  allowances  of  money, 
might  just  as  well  starve  them  literally  by  a  short  allowance 
of  bread  ;  for  how  can  they  get  work  unless  employers  can 
get  plenty  of  money  to  pay  for  it,  and  how  are  the  workmen 
to  pay  for  their  bread  unless  they  can  sell  their  labor  for 
money,  which  the  terrible  contraction  has  made  so  scarce 
that  the  banks  will  not  let  it  go  ?  I  thought  Mr.  O.  P.  E. 
was  severe  and  churlish  enough  towards  American  labor,  but 
now  comes  N.  S.  B.  to  refuse  it  even  a  crust.  He  is  for 
tying  up  the  banks  by  some  kind  of  hocus-pocus  arrange- 
ment, so  that  they  can't  loan  more  than  half  or  two  thirds  as 


30  MONETARY   AND   INDUSTRIAL  FALLACIES. 

much  as  they  can  under  O.  P.  E.  and  O.  S.  B.'s  theory. 
There  is  but  one  way  to  do  at  this  rate,  and  that  is  to  make 
a  united    effort   and  have   the  Constitution  of   the    United 
States  so  amended  as  to  prohibit  the  issue  of  notes  intended 
for  circulation,  either  by  banks    or  individuals,  confine  the 
issue  of  paper  money  to  the  general  government,  and  at  the 
same  time  require  it  to  issue  just  as  much  as  may  be  needed. 
Exactly  how  this  is  to  be  done  I  have  not  yet  decided,  but, 
while  we  are  thinking  of  a  plan,  the  government  and  the 
states  together  might   just  as  well  tax  the  national  banks 
out  of  existence,  and  give  us  state  banks  of  issue  again.     I 
once  thought  we  had  gained  a  great  point  in  getting  rid  of 
the  notes  of  state  banks,  which  only  circulated  about  home  ; 
but  for  the  sake  of  having  plenty  of  money,  and  keeping 
American  labor  from  being  starved  out,  I  say,  give  us  back 
the  old  state  banks  of  issue  without  requiring  them  to  give 
any  security  for  their  issues.     As  to  their  reserve,  the  less  of 
it  the  better,  in  order  to  make  money  more  plenty.     Such 
are  my  opinions  about  the  necessity  of  abundance  of  money, 
and  I  shall  not  flinch  from  any  conclusions  they  may  lead  to. 
I  know  there  can't  be  any  such  thing  as  too  much  product, 
and  hence  there  can't  be  too  much  labor  to  make  it.     O.  P. 
E.  agrees  with  me  that  there  can't  be  too  much  labor,  but  he 
is  not  willing  to  make  money  abundant :  he  would  starve 
the  laborers,  although  he  says  there  can't  be  too  many.     No 
man  has  yet  answered  my  arguments. 

0.  P.  E.  I  said  there  could  be  no  overproduction.  I 
did  not  say  there  could  be  no  glut,  because  that  happens  oc- 
casionally. I  said  further,  that  excessive  issues  of  paper, 
whether  by  banks  or  governments,  bring  on  eras  of  specula- 
tion which  end  in  panics.  Bank  credit  has  no  more  to  do 
with  speculation  than  mercantile  credit,  and  inflation  comes 
only  from  too  much  paper  money,  although  some  assert  that 
there  never  can  be  too  much,  if  convertible.  Gold  never 
causes  inflation,  because  there  never  can  be  an  excess  of  it. 
Gold  coin,  less  alloy,  is  always  worth  an  equal  weight  of 
gold  bullion,  and  it  never  can  be  overproduced.  No  matter 
what  the  annual  production,  it  cannot  depreciate  gold  in  the 


MONKTARY   AND   INDUSTIIIAL  FALLACIES.  31 

least.  I  have  also  just  discovered  the  proper  answer  to  N. 
S.  B.'s  theory  of  a  reguhited  reserve.  Where  gold  is  used 
there  is  always  double  barter,  as  every  writer  on  political 
economy  says.  If  the  double  check  to  overissues,  which 
double  barter  furnishes,  is  not  sufficient,  what  further  check 
can  be  of  any  use  ? 

N.  S.  B.  Between  the  two  economists,  O.  P.  E.  and  C. 
B.  C,  I  am  not  likely,  I  think,  to  fare  very  well.  I  once 
heard  a  witness,  when  asked  how  he  stood  between  the  par- 
ties to  a  neighborhood  quarrel,  reply  that  he  stood  nuisance 
between  'em,  and  I  fear  tliat  I  am  a  monetary  nuisance  be- 
tween O.  P.  E.  and  C.  B.  C. 

0.  P.  E.  By  no  means.  I  should  be  glad  to  hear  you 
further,  and  so,  no  doubt,  would  C.  B.  C.  and  O.  S.  B.,  who 
has  not  spoken  since  his  return. 

0.  S.  B.  and  C.  B.  C.  By  all  means  ;  we  can't  be  injured 
by  anything  we  may  hear. 

N.  S.  B.  It  would  be  a  matter  of  indifference  to  me 
whether  you  believe  gold  money  to  be  an  ordinary  commod- 
ity or  not,  did  not  a  belief  that  it  is  such  stand,  as  it  surely 
does,  in  the  way  of  your  learning  what  is  the  proper  function 
of  gold  in  banking  reserve.  I  affirm  that  it  is,  in  point  of 
true  science,  one  of  limitation  ;  you  affirm  that  it  is  a  basis, 
and  that  bank  credit  has  no  direct  relation  to  banking  re- 
serve. When  you  use  the  term  basis,  therefore,  it  is  certain 
that  you  mean  by  it  something  very  different  from  what  I 
mean  by  limitation.  Redemption  of  money  is  an  exchange 
of  one  kind  for  another.  The  government  which  totally  or 
partially  demonetizes  one  metal  must  redeem  it  with  an- 
other, or,  possibly,  with  paper,  and  to  complete  the  redemp- 
tion in  either  case  time  is  required.  Strictly  speaking,  silver 
used  for  what  is  called  subsidiary  coinage  is  not  monetized  ; 
that  is  to  say,  is  not  made  money  in  an  international  sense, 
although  it  is  in  a  limited  field  money,  quite  as  much  as  if 
the  coinage  were  free.  It  is  limited  to  the  same  field  as 
paper  money,  and  as  money,  therefore,  may  bo  said  to  ap- 
proach nearer  in  character  to  paper  than  gold  or  silver  when 
freely  coined  at  the  barter  rates  prevailing  through  the  com- 


32  MONETARY  AND  INDUSTRIAL  FALLACIES. 

inercial  world.  A  bank  of  issue  is  bound  to  redeem  all  its 
liabilities  in  coin,  in  order  not  only  to  satisfy  the  mercantile 
idea  or  instinct  of  boarding ;  to  furnisli  metallic  money  or  a 
bill  of  excbano-e  to  go  abroad  where  its  own  notes  cannot  be 
conveniently  sent,  or  if  sent  would  not  circulate  ;  to  remove 
even  the  unreasonable  doubts  of  holders,  by  giving  them  coin 
to  pay  out  at  home  in  place  of  the  notes  ;  but  also  for  a  very 
different  and  higher  purpose.  That  purpose  is  the  limitation 
of  the  circulation  as  w^ell  as  volume  of  paper  money  by  me- 
tallic money,  coined  at  the  rates  of  the  commercial  world, 
and  by  the  circulation  of  that  metallic  money  in  the  tracks 
of  commerce.  If  you  could  understand  the  necessity  of  such 
a  limitation,  in  order  to  secure  steadiness  of  production,  and 
therefore  of  money  circulation  and  prices,  as  well  while  ad- 
hering to  the  old  commodity  theory,  I  would  not  take  up  a 
moment's  time  in  trying  to  show  you  that  it  is  not  true.  I 
would  let  you  enjoy  the  poetry  of  barter  and  double  barter, 
and,  if  you  choose,  of  bows  and  arrows.  But  you  cannot 
clearly  comprehend  it  until  you  have  taken  in  the  conven- 
tional and  credit  character  of  all  money.  Adam  Smith  is 
the  only  man  who  has  ever  approximated  a  clear  comprehen- 
sion of  it  while  still  adhering,  as  he  certainly  did,  to  the  ut- 
most extent,  to  the  idea  of  commodity  and  double  barter. 
His  great  sagacity  and  clearsightedness  enabled  him  to  do 
this,  in  spite  of  the  theory.  He  is  an  unimpeachable  witness 
to  the  necessity  of  a  metallic  reserve  against  bank-notes, 
varying  at  short  averages  with  the  notes  in  circulation,  and 
therefore  limiting  their  volume  by  its  own.  Where  the  loans 
of  a  bank  are  made  to  customers  whose  repayments  are  upon 
most  occasions  equal  to  that  of  the  advances,  he  says,  the 
stream  continually  running  into  its  coffers  must  be  equal  to 
that  running  out.  This  means  that  the  outward  stream  of 
loans  to  buyers,  in  other  words,  producers,  is  not  in  excess  of 
the  returning  stream  of  payments  by  sellers.  Production 
and  consumption  are  balanced,  and  the  balance  is  proved  by 
the  even  ratio  of  reserve  to  bank  debt.  In  those  banks,  on 
the  contrary,  whose  reserve  is  not  only  varying  but  also  los- 
ing all  the  time  because  the  outward  is  in  excess  of  the  in- 


MONETARY  AND  INDUSTIUAL  FALLACIES.      33 

ward  current,  they  are  compelled  to  obtain  their  supplies  of 
coin  by  purchase,  and  their  capital  is  soon  exhausted,  unless 
the  loss  of  reserve  resulting  from  want  of  balance  between 
the  production  caused  by  their   loans  and  the  sales  of  the 
product  to  cash  buyers  teaches  them  in  due  time  the  neces- 
sity of  contracting  their  discounts  and  discriminating  between 
their  customers.     It  was  not  merely  the  masterly  sagacity  of 
Smith  that  enabled  him  to  perceive  that  the  test  of  sound 
banking  lay  in  the  maintenance,  on  short  averages,  of  an 
even  ratio  of  reserve  to  bank  debt,  as  an  inscribed  polygon 
of  many  sides  at  short  intervals  touches  and  almost  coincides 
with  tiie  containing  circle,  but  it  was  also  the  character  of  the 
banking.     The  banks  which  did  not  keep  such  a  reserve  as 
the  natural  and  unavoidable  result  of  the  character  of  their 
loans,  were  compelled  to  retrace  their  steps  or  become  bank- 
rupt, and  the  bankruptcy  of  one  or  more  banks  did  not  in- 
volve others  :  each  bank  stood  or  fell  by  its  own  acts.    Smith 
was  thus  enabled  to  use  his  natural  sagacity  and  powers  of 
observation  to  good  effect,  and,  by  the  aid  of  his  testimony,  I 
am  enabled  to  furnish  you  a  practical  proof  of  my  theory. 
Deposit  and  discount  banks,  whether  they  issue  notes  or  not, 
stand  all  together,  and  not  each  upon  its  own  strength,  be- 
cause they  redeem  for  each   other  by  deposit,  and  out  of  a 
substantially  common  fund.     Their  reserve  not  only  varies, 
but  it  varies  upon  long  averages,  and  therefore  during  a  long 
period  the  outgoing  current  referred  to  by  Smith  is  progres- 
sively and  slowly  enlarging,  while   the  returning  current  is 
all  tlie  time  diminishing  by  the  same  ratio.    A  banking  crisis 
which  is  brought  about  by  the  paramount  crisis  between  pro- 
duction and  consumption,  reverses  the  streams.     This  crisis 
is  only  the  bringing  about,  upon  long  averages,  a  rectifica- 
tion which  ought  to  be  brought  about  frequently,  and  there- 
fore  without   industrial   disturbance,   upon    short   averages. 
The  difficulty  is,  that  this  kind  of  banking  has,  through  the 
crude  explanations  which  have  been  given   of  the  nature  of 
deposits  and  deposit  loans  and  bank  credit,  so  called,  as  hav- 
ing no  connection  with   the  reserve,  led  to  the  false  opinion 
that  banks  loan  only  what  is  called  credit,  and  that  there  is 

3 


34  MONETAKY  AND   INDUSTRIAL  FALLACIES. 

therefore  no  necessary  connection  between  loans  and  reserve, 
as  there  was  in  Smith's  time,  although  there  is  in  reality  no 
difference  between  the  two  systems  in  respect  to  the  neces- 
sity of  limiting  all  bank  loans  by  some  fixed,  invariable  law, 
which  will  force  improvident  bankers  to  become  conserv- 
ative by  an  invariable  test.  Smith's  lessons  have  been  lost. 
I  recall  your  attention  to  them.  You,  Mr.  O.  P.  E.,  and 
other  writers,  quote  Smith  as  authority  frequently  in  respect 
to  bank-notes,  without  understanding  him.  Pardon  me  for 
stating  thus  broadly  what  truth  compels  me  to  say.  I  in- 
cline to  think  you  will  not  be  able  to  understand  his  testi- 
mony fully,  until  you  make  a  proper  analysis  of  money,  if 
you  can  divest  yourselves  of  the  old  mercantile  theory  long 
enough  to  make  a  proper  analysis,  and  it  is  certainly  high 
time  of  day  to  do  it.  You  may  continue  to  call  money  a 
commodity  if  you  choose,  but  you  must  take  in  fully  the 
idea  that  it  is  one  of  conventional  value,  introduced  in  sub- 
ordination to,  and  not  independently  of,  man's  wants.  Paper 
is  just  as  conventional  as  metal  within  its  more  limited  area. 
But  the  reason  why  you  have  lost  all  idea  of  connection 
between  bank  loans  and  reserve,  is,  that  your  understanding 
is  beguiled  by  the  terms  Commodity,  Barter,  and  Double 
Barter  in  the  reserve  on  the  one  hand,  as  differing  materially 
from  Debt  and  Credit  outside  of  the  reserve  on  the  other ; 
though  at  considerable  distance,  as  you  would  have  them. 
Were  there  no  such  things  as  deposits,  checks,  and  clearings, 
and  no  form  of  bank  debt,  save  notes  circulating  always  by 
the  side  of  metallic  money,  except  when  locked  up  in  safes, 
or  deposited  in  tills  or  pockets,  you  would  have  continually 
before  your  eyes  the  fact  mentioned  by  Smith,  that  the 
bank-note  all  the  time  takes  the  place  of  so  much  metal, 
and  buys  equal  values.  But  the  bank-note  is  but  a  unit  or 
definite  number  of  units  marked  upon  its  face  in  its  char- 
acter of  money,  and  metal  can  be  no  more.  Bank-notes 
can  be  indefinitely  multiplied,  however ;  units  of  metal  un- 
banked  cannot  be :  the  former,  therefore,  must  be  limited 
by  the  latter,  or  there  will  be  excess.  So  long  as  on  the 
average  only  four  units  of  the  former  are  paid  out,  in  all 


MONETARY   AND  INDUSTRIAL   FALLACIES.  35 

purchases  both  at  wholesale  and  retail  everywhere,  to  one  of 
the  latter,  the  paper  circulation  will  vary  with  the  metallic. 

0.  p.  E.  The  notes  of  the  Bank  of  England  represent 
for  the  most  part  gold  :  the  theory  was  that  they  would 
vary  as  gold  varies,  and  I  suppose  they  do.  You  are  wrong, 
I  think,  in  bringing  Smith  forward  as  an  authority.  It  is 
true  we  have  always  referred  to  him  to  prove  that  there  can 
be  no  excess  of  bank-notes.  I  doubt  whether  we  ever  had 
in  mind  that  there  were  no  deposits  in  his  day  in  Scotland, 
or  at  least  none  of  any  importance,  but  this  only  shows  that 
we  have  been  mistaken  in  referring  to  Smith.  Deposits  and 
bank  credit  have  been  developed  since  his  time,  and  they 
have  shown  what  a  vast  volume  of  business  can  be  trans- 
acted by  mere  debt  and  credit,  with  only  a  very  limited 
amount  of  money ;  the  smaller  transactions  of  commerce 
alone  require  a  commodity  like  money.  My  creed  about 
commerce  and  money  can  be  said  in  a  few  words,  as  you 
perceive.  The  smaller  transactions  may  be  called  the  com- 
modity side  ;  the  larger,  the  credit  side  of  commerce.  If  we 
have  been  quoting  Adam  Smith  all  this  time  to  no  purpose, 
so  much  the  worse  for  him.  Living,  as  I  now  perceive  he 
did,  when  only  money  was  used,  and  before  ci-edit  had,  as 
it  has  in  our  time,  almost  entirely  taken  the  place  of  money, 
his  testimony  is  of  little  importance.  Ci'edit  is  the  life  of 
our  time,  and  it  looks  sometimes  as  if  it  must  one  day 
supersede  the  precious  metals  altogether.  Commodity  will 
then,  by  almost  universal  clearing,  be  cleared  from  off  the 
face  of  the  commercial  world. 

S.  L.  I  have  been  listening  carefully.  I  don't  fully 
comprehend  what  Mr.  O.  P.  E.  has  said,  but  as  far  as  I  do, 
I  understand  him  to  mean  plenty  of  money,  and  that  I  favor, 
because  it  means  plenty  of  work.  By  credit  I  take  it  he 
means  bank  credit,  and  if  I  can  understand  it,  he  means  by 
that  plenty  of  money.  I  call  it  money,  because  I  can't  un- 
derstand how  we  are  to  be  paid  in  anything  but  money.  If 
my  employer  gives  me  a  check  I  can  use  it.  I  have  only  to 
call  for  bank-notes,  or  coin,  if  I  want  it  ;  and  if  I  were  rich 
enough  to  have  a  bank  account,  I  know  enough  to  know 


36  MONETARY   AND   INDUSTRIAL  FALLACIES. 

that  I  liave  money  in  bank,  or,  as  I  have  heard  it  expressed, 
"  at  my  banker's."  I  know  that  means  ready  cash,  although 
I  suppose  the  learned  call  it  credit.  By  credit  I  certainly 
mean  something  that  is  the  very  opposite  of  cash,  but  I  sup- 
pose it  is  only  a  new  name  they  have  for  money.  They 
may  call  it  what  they  choose  if  it  keeps  me  at  work. 

(7.  B.  0.  I  have  been  long  silent,  hoping  to  hear  words 
of  encouragement,  and  at  last  I  have  them.  When  N.  S.  B. 
opened,  I  supposed  he  was  on  my  side,  and  I  was  hoping 
when  he  talked  about  double  barter  and  conventional  value 
that  he  was  on  the  side  of  American  labor  and  abundance  of 
money ;  but  when  he  referred  to  Adam  Smith  as  authority 
for  limiting  bank-notes  by  metallic  reserve,  I  perceived  that 
he  was  on  our  side  only  to  betray  us.  The  only  hope  for 
banking  lies  now  with  O.  P.  E.  Banking  is  doomed  unless 
the  banks  can  be  forced  into  more  liberality.  They  are  un- 
willing to  lend,  and  have  always  contracted  when  they 
ought  to  have  expanded.  They  helped  Mr.  McCulloch  to 
bring  on  the  panic  of  1873,  which  was  the  result  of  a  terri- 
ble contraction  of  money.  But  if  their  course  in  the  future 
should  be  to  loan  freely,  and  by  extending  clearing  let  the 
reserve  take  care  of  itself  as  O.  P.  E.  proposes,  I  shall  be 
satisfied  to  keep  them. 

0.  S.  B.  I  must  speak,  lest  silence  imply  consent.  No 
extension  of  clearing  will  ever  make  me  believe  that  a  good 
reserve  can  be  dispensed  with  :  there  can  be  no  safe  bank- 
ing without  it,  and  that,  as  a  practical  man,  I  well  know.  At 
the  same  time,  however,  I  must  say  that  my  reserve  can't  be 
kept  at  an  even  average  for  short  periods.  The  movement 
of  crops  and  the  distribution  of  goods  at  certain  seasons  keep 
every  banker's  reserve  varying  all  the  time.  When  there  is 
a  demand  for  money,  then  I  must  have  the  privilege  of  mak- 
ing loans.  I  am  bound  to  confess,  however,  as  a  candid 
man,  that  my  reserve,  in  spite  of  all  my  efforts,  progres- 
sively diminishes,  although  very  slowly,  up  to  the  time  of  a 
banking  crisis,  and  then  progressively  increases.  Under  the 
use  of  bank  credit,  so  extensively  in  modern  times  in  place 
of  money,  this,  I  suppose,  cannot  be  avoided.    I  am  surprised 


MONETARY   AND  INDUSTRIAL   FALLACIES.  37 

to  learn  from  O.  P.  E.,  however,  that  Adam  Smith  must  be 
given  up  as  an  authority  any  longer  upon  bank-note  circu- 
lation. This,  I  suppose,  must  come  from  the  great  difference 
between  bank-notes  and  credit.  Gold  coin  is  a  commodity 
which  never  clianges  its  value.  It  is  one  of  those  things 
that  never  can  be  overproduced,  and  I  believe  it  will  always 
be  the  basis  of  circulation.  This  will  always  keep  prices 
steady,  because  gold  will  be  the  ultimate  measure  of  value, 
as  a  yard-stick  is  of  cloth.  Nor  do  I  believe  that  banks  of 
issue  or  of  deposit  can  ever  be  given  up.  But,  possibly, 
N.  S.  B.  may  have  some  new  ideas  upon  these  subjects.  I 
am  more  ready  to  hear  him  since  he  has  referred  so  often  to 
Adam  Smith.  I  should  be  glad  to  hear  wherein  banking 
with  credit  differs  from  Smith's  banking  with  notes  ;  how 
a  reserve  can  be  kept  as  he  says  ;  and  whether  gold  is  not  a 
perfect  standai'd  of  value. 

iV.  S.  B.  I  can  answer  you  in  a  few  words.  Whether 
you  call  gold  coin  an  ordinary  commodity,  and  believe  in 
double  barter  or  not,  we  have  lost  a  large  part  of  the  por- 
tion of  metal  which  the  needs  of  commerce  would  have 
brought  to  us,  or  rather  retained  for  us,  out  of  the  produce 
of  our  mines.  Great  Britain  is  also  short  in  her  portion. 
We  have  both  economized.  To  abandon  bank  debt  by  note 
would  require  us  to  disturb  considerably  the  ratios  of  metal- 
lic distribution.  It  could,  however,  be  done  in  the  future  by 
adopting  a  very  gradual  process.  But  to  abandon  bank  debt 
by  book  would  disturb  very  seriously  the  ratios  of  metallic 
accumulation,  and  therefore  of  value  ;  and  as  long  as  we 
have  bank  debt  of  any  kind,  in  excess  of  reserve  to  pay  it 
with,  it  must,  if  we  expect  to  maintain  steady  prices,  be  lim- 
ited, as  Adam  Smith  testifies,  by  a  metallic  reserve,  varying, 
not  as  O.  S.  B.  says,  at  very  long,  but  at  short  averages  with 
bank  debt ;  and  it  is  immaterial  whether  the  debt  is  evi- 
denced by  book  or  by  note.  The  reason  why  this  variation 
should  take  place  within  short  and  not  long  periods,  is  be- 
cause the  reserve,  unless  banks  are  forced  to  buy  gold,  is 
made  up  entirely  of  the  payments  or  deposits  in  bank  made 
by  sellers  in  a  consumer's  market,  under  deposit  and  discount 


.iSSOia 


38  MONETARY  AND   INDUSTRIAL  FALLACIES. 

banking,  and    under  issue  banking,  of   the   payments   into 
bank  of  sellers  who  are  borrowers  only,  in  the  absence  of  de- 
positors.    In  all  kinds  of  banking  the  reserve  under  a  sound 
system  is  made  up  of  these  payments  or  deposits,  or  both, 
and  the  ratio  of  reserve  to  bank-notes  is  the  only  possible  in- 
dicator of  excess,  while  the  maintenance,  at  a  proper  ratio, 
of  the  reserve,  is  the  only  possible  mode  of  limiting  the  use 
of  money  through  bank  debt,  as  nearly  as  possible,  to  the 
wants  of  a  consumer's  market.     None  but  banks  can  make 
those  loans  which  the  present  state  of  metallic  distribution 
requires,  or  keep  the  reserve  which  is  necessary  to  supply 
them.     It  is  impossible  for  the  government  to  do  this  busi- 
ness ;  it  is  absolutely  necessary,  however,  that  it  should  be 
done,  and  it  cannot  possibly  be   done  except  by   banks  of 
issue  or  deposit  and  discount,  or  both.     We  can  economize 
metal  by  slow  and  gradual  changes  in  the  future  to  such  an 
extent  as  to  get  rid  of  bank-notes,  unless  covered  by  a  de- 
posit of   an  equal  amount  of  metal,  substantially  after  the 
English   plan,  but  we  never  can  give    up  banking  in  some 
form,  without  producing  such  a  disturbance  in  the  distribu- 
tion of  the  metals  as  to  make  it  out  of  the  question.     We 
must  continue  to  have  banks  of   issue   or  deposit    and  dis- 
count, or  both,  as  we  now  have.     A  sound  system  of  bank- 
ing  is  more  important  to  the    country   at  large   than   the 
banks,  because  the  interest  of  the  whole  country  in  the  sub- 
ject must  be  greater  than  that  of  only  a  part.     It  is,  there- 
fore, not  wrong  ;  for  that  is  not  the  word,  — it  is  stupendous 
folly  to  tax  the  national  banks  as  they  are  now  being  taxed, 
and  to  talk  of  going  back  to  the  issues  of  state  banks.     So 
much  for  your  question   in  relation  to  banks.     As  to  your 
remark  that  no  overproduction  can  take  away  from  the  ex- 
changeable value  of  gold,  it  is  on  the  one  hand  substantially 
true,  and  on  the  other  false.     Gold  as  well  as  silver  have 
been  for  ages  distributed  in  the  tracks  of  commerce,  but  of 
late  not  regularly.     Were  they,  as  money,  ordinary  commod- 
ities, they  would  have  been  distributed  reguhirly  up  to  this 
day,  because  there  would  have  been  an  equal  necessity,  and 
therefore  an  equal  demand  for  them,  in  proportion  to  com- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  39 

merce.    Because  in  tluir  character  of  units  of  valuation,  pur- 
chase and  payment  localized  in  and  limited  by  the  containing 
metal,  their  place  could  be,  it  has  been,  taken  by  bank  and 
government  paper,  more   or  less  in  all  countries.     Such  a 
substitute  could  never  have   been   made  without  a  reason, 
and  such  as  I  have  given  is  the  reason.    For  the  same  reason, 
and  for  no  other,  gold  and  silver  in  the  reserve  of  a  deposit 
and  discount  bank  can  be  "  economized."     If  all  commodi- 
ties were  needed  only  to  circulate  or  distribute  continually 
like  gold  and  silver  coin,  instead  of  being,  by  reason  of  in- 
trinsic utility  for  that  purpose,  distributed  only  to  be  con- 
sumed, their  intrinsic  qualities  would  become  unimportant : 
they  would  require  division  by  some  regular  rule  ;  by  meas- 
ure or  by  weight.     But  for  no  other  purpose  would  division 
be  required,  and  upon  no  other  plan  could  it  be  made.     If 
the  dimensions  of  the    units  of    some  of    the  commodities 
were  so  small  that  they  could  be  banked,  not  only  could  all 
the  exchanges  formerly  made  with  the  whole  be  now  made 
with  one  fifth  of  their  former  number,  when  unbanked,  but 
there  would  be  no  assignable  limit  but  a  crisis  and  blocking 
of  the  exchanges  to  the  number  of  exchanges  with  units  of 
other  commodities  which  could  be  made  with  the  units  now 
banked,  although  reduced  to  one  fifth  of  their  former  vol- 
ume.    Therefore  eighty  per  cent,  of  the' material  could  be 
dispensed  with,  and  twenty  per  cent,  without  the  use  of  a 
single  unit  of  bank  credit,  which,  even  to  mention,  is  ab- 
surd, could  maintain  not  only  harmony  in  all  the  exchanges, 
but  its  use  be  carried  to  such  an  excess  as  to  create  discord, 
which  it  would  take  time  to  rectify.     What  all  commodities 
would  be  used  to  accomplish  in  the  case  supposed,  gold  and 
silver,  so  far  as  they  are  used  as  money,  are  now  employed 
to  accomplish.     Hence  barter   rates  of   value,  between  the 
commodities    gold    and    silver,  are   regulated    inversely   by 
quantities,  and  not  by  quantities  plus  qualities.     Again,  if 
gold  and  silver  were  ordinary  commodities,  they  would  not 
have  depreciated  regularly  in  purchasing  power  since  the  dis- 
covery of  America.     The  general  opinion  that  silver  is  only 
a  commodity,  finds  expression  in  the  fears  of  those  who,  like 


40  MONETARY   AND  INDUSTRIAL  FALLACIES. 

you,  imagine  an  "  inflation  "  as  the  result  of  its  coinage  by 
the  United  States  in  excess  of  subsidiary  wants.  This  opin- 
ion is  founded  on  the  fallacy  which  beguiles  you.  If  gold 
and  silver  coin  be,  when  used  as  money,  such  a  series  of 
units  as  I  have  mentioned,  then  a  large  annual  product  of 
gold  continued  for  years  ought  not  to  disturb  its  present 
value  materially ;  for  even  should  the  increase  of  the  units 
of  the  product  be  in  excess  of  the  increase  of  the  units  of 
merchandise  and  capital  to  be  distributed  by  it,  the  propor- 
tion or  ratio  between  the  whole  mass  of  coin  on  hand  and 
the  new  product  of  metal,  would  be  too  small  to  seriously 
reduce  purchasing  power.  That  is  the  true  reason  why  gold 
in  France,  for  instance,  maintains  its  purchasing  power 
without  regard  to  increase  or  decrease  of  metallic  produc- 
tion. The  ratio  of  increase  or  decrease  is  so  small,  when 
compared  with  the  whole  mass  of  metal  actually  coined, 
that  it  can  make  no  appreciable  change  in  the  purchasing 
power  of  the  metal  when  scattered  in  the  tracks  of  com- 
merce, as  in  France,  and  not  banked.  From  this  point  of 
view  you  are  right  in  saying  that  the  exchangeable  value 
of  gold  is  steady,  independently  of  its  production  ;  and  un- 
less you  change  your  place  of  observation,  you  might  insist 
that  its  value  never  changes,  like  a  traveler  in  a  railroad 
carriage  which  is  motionless  at  a  station,  who,  seeing  the 
carriages  of  another  train  moving  out  slowly  in  advance  of 
his,  thinks  his  train  is  the  one  in  motion,  until  he  rectifies 
the  error  through  the  ocular  demonstration  to  the  contrary, 
obtained  by  looking  at  the  wheels  of  the  train  actually  mov- 
ing. After  tlie  discovery  of  America,  gold  and  silver  fell 
rapidly  because  there  were  few  banks,  and  the  ratio  of  an- 
nual production  to  mass  was  large  in  comparison  with  the 
present  ratio.  Again,  during  the  suspension  of  payments 
by  the  Bank  of  England,  and  for  the  last  twelve  years  in 
the  United  States,  the  premium  on  gold  has  been  no  test 
of  the  purchasing  power  of  paper,  or  of  itself.  Mr.  Tooke 
wrote  his  "  History  of  Prices  "  to  show,  with  other  things, 
that  the  premium  on  gold  was  a  test  of  the  true  difference 
between  the  purchasing  power  of  gold  and  Bank  of  Eng- 


MONETARY  AND   INDUSTRIAL  FALLACIES.  41 

land  notes;  his  theory  being  that  if  gold  had  fallen  in  pur- 
chasing power,  it  was  from  causes  independent  of  the  issues 
of  the  bank,  and  that  it  resulted  from  deficient  harvests, 
etc.  lint  the  fact  stands  that  there  was  a  general  rise  in- 
dependently of  premium,  both  in  England  and  the  United 
States  ;  and  when  the  fall  came,  it  was  from  causes  para- 
mount to  gold,  or  anything  else  but  itself,  in  both  countries. 
It  was  a  crisis  in  production  and  the  exchanges.  But  if  you 
will  examine,  you  will  find  that  unconsciously,  and  indi- 
rectly, Mr.  Tooke,  although  undoubtedly  a  very  able  and 
clear-headed  man,  demonstrated  the  error  of  his  theory  by 
his  own  tables  of  prices.  His  tables  are  largely  made  up  of 
prices  at  wholesale  of  imported  goods,  or  perhaps,  rather, 
the  actual  cost  of  importing.  Of  course  the  importations 
were  reckoned  at  metallic  rates  with  only  premium  added, 
or  to  be  added.  This  did  not  show  the  prices  of  home  pro- 
ductions. Gold  was  in  England,  as  it  was  in  the  United 
States,  therefore,  the  cheapest  relatively  of  all  things,  as 
compared  with  prices  abroad.  This  made  it  profitable  to 
send  gold,  not  absolutely  required  at  home,  to  invest  in  mer- 
chandise abroad.  The  higher  the  premium  the  less,  the 
lower  the  pi'emium  the  greatei*,  the  inducement  to  send  it 
from  home.  Looking  at  gold  from  this  point  of  observation, 
your  theory  of  unvarying  exchangeable  value  is  false.  Gold 
cannot  measure  value  like  a  yard-stick,  unless  you  consider 
the  yard-stick  as  always  varying  more  or  less,  —  sometimes  a 
little  longer,  and  sometimes  a  little  shorter,  than  the  true 
length.  If  you  consider  it  as  thus  varying,  but  only  slightly 
and  at  short  intervals,  you  can  form  some  idea  of  what  I 
mean  by  maintaining  a  reserve  which  varies  as  little  as  pos- 
sible, and  at  short  intervals,  because  the  sales  in  consumers' 
markets  are  equal  to  those  in  producers',  with  reasonable 
charges  and  profits  added. 

C.  B.  C.  You  are  right  about  the  premium  on  gold.  The 
premium  was  a  boon  to  American  labor  while  it  lasted ;  and 
if  the  government  had  issued  sufficient  paper,  instead  of  con- 
tracting its  issues,  the  premium  would  have  b(^en  maintained 
at  high  figures,  and  b}'  keeping  out  importations  would  have 
stimulated  American  labor. 


42  MONETAEY  AND  INDUSTRIAL  FALLACIES. 

0.  S.  B.  It  would  have  stimulated  it  only  to  destroy,  by 
making  repudiation  through  overissues  probable,  if  not  cer- 
tain. The  great  mistake  of  the  war  was  an  overissue  of  cur- 
rency by  the  government.  I  am  half  converted  by  the  argu- 
ments of  N.  S.  B.  in  respect  to  bank  reserve,  although  as  to 
the  commodity  and  double-barter  and  credit  theories,  I  am 
not.  It  looks  as  if  the  latter  must  be  true,  at  first  sight,  as 
he  says,  and  to  me  at  second  sight.  I  shall  take  time  to 
think  of  it.  But  as  to  variable  reserve,  —  if  the  state  of  the 
reserve  shows,  as  he  says,  what  consumers,  for  whom  goods 
are  made,  are  doing  with  them,  and  that  sound  loans  main- 
tain a  sound  reserve,  I  am  not  so  clear  in  my  opinion  about 
a  variable  reserve  as  I  was  before.  It  may  be,  after  all,  that 
a  bank  which,  without  regard  to  the  clamor  and  demands  of 
any  of  its  customers,  keeps  such  a  reserve,  will  not  only  help 
them  by  keeping  trade  steady,  but  will,  in  the  end,  make  the 
most  money  for  its  stockholders.  I  confess,  however,  that  I 
should  not  have  been  half  converted  in  this  way,  had  it  not 
been  for  what  N.  S.  B.  said  about  the  testimony  of  Adam 
Smith.  Why  should  a  variable  reserve  be  the  test  of  good 
banking  in  our  time,  if  a  steady  reserve  was  the  test  in  his  ? 
Can't  we  loan  more  money  with  the  same  reserve  than  they 
did  in  his  time  ?  If  a  customer  paid  his  note  or  bill  with 
bank-notes  of  a  bank  in  Smith's  time,  did  he  not  cancel  bank 
debt  just  as  much  as  one  of  our  customers  who  does  it  by 
check  instead  of-  returning  notes  ?  Is  there  any  difference  ex- 
cept in  the  form  of  the  debt  ?  And  is  that  aaiything  more 
than  a  question  of  form,  as  he  says  ?  In  fact,  what  do  we 
mean  when  we  talk  about  setting  off  debt  against  credit,  or 
debt  against  debt,  and  a  banker  being  a  dealer  in  credits  ? 
How  can  a  banker  in  our  time  be  a  dealer  in  credits,  any 
more  than  a  banker  who  issued  notes  from  a  bank  in  Smith's 
time?  N.  S.  B.  says  that  we  don't  use  our  credit  except  to 
circulate  the  money  of  our  depositors  by  virtue  of  a  credit 
extended  to  us  by  them,  and  that  bank  loans  are  supplied 
by  the  incoming  stream  of  deposits  and  payments  made  by 
the  sellers  in  consumers'  markets,  as  they  were  supplied  in 
Smith's  time.     The  only  difference,  according  to  him,  seems 


MONETARY   AND   INDUSTRIAL   FALLACIES.  43 

to  be  that  in  Smith's  time  the  stream  was  supplied  by  the 
payments  of  borrowers,  as  there  were  no  depositors.     But  is 
this  not  a  mere  question  of  form  ?  —  for  the  reserve  was  sup- 
plied out  of  the  same  market  in  both  cases.     I  can't,  I  con- 
fess, answer  N.  S.  B.'s  argument,  that  the  reserve,  as  it  is 
called  in  our  banking,  as  it  was  in  Smith's  time,  is  the  fund 
out  of  which  all  payments  are  made,  —  clearings,  I  suppose, 
only  saving  labor,  and  so  disguising  the  real  fact ;  but  I  am 
not  yet  ready  to  accept  that  theory.     I  am  unable  to  per- 
ceive, however,  with  him,  why  gold  should  nut  be  a  basis 
(he  calls  it  limitation)  of  loans,  and  therefore  of  checks  and 
clearings,  for  all  transactions,  wholesale  as  well  as  retail,  as 
much  now  as  it  was  with  banks  of  issue  only.     After  all, 
too,  I  never  pretended  to  be  able  to  see  how  bank  credit  or 
bank  debt  was  used  to  buy  with,  unless  in  some  such  way  as 
bank-notes  are  used.     I  have  frequently  asked  what  bank 
credit  is,  but  never  had  an  answer.    I  can't  understand  what 
it  is,  unless  it  is  a  debt  which  a  bank  owes  a  depositor,  and 
he  transfers  to  the  seller  when  he  buys  of  him,  as  he  would 
bank-notes.     If  the  check  is  not  good,  it  is  no  more  a  pay- 
ment than  if  made  in   counterfeit  bank-notes  ;   if  good,  it 
pays.     The  check  takes  the  place  of  bank-notes,  then,  and 
is  limited  by  the  drawer's  credit  in  bank.     The  delivery  by 
transfer  of  this  credit,  like  the  delivery  of  a  like  sum  in 
bank-notes,  is  what  pays,  where  no  cash  is  actually  deliv- 
ered out  of  the  reserve  ;  or,  on  the  other  hand,  the  money  in 
the  reserve  may  be  said  to  pass  and  its  delivery  saved  by 
clearing,  as  N.  S.  B.  says.     I  know  that  in  a  very  practical 
and  useful  book,  entitled   '^' Banks  of  New   York  and   the 
Panic  of  1857,"  the  writer,  Mr.  J.  S.  Gibbons,  states  very 
plainly   that  the    clearing-house    system   of    settlements   re- 
quires the  banks  to  keep  themselves  stronger  in  reserve  than 
was  necessary  under  the  old  system,  where  specie  was  carted 
or  carried  about.     He  calls  it  the  restriction  of  loans  by  the 
necessity  of  maintaining  a  certain  average  of  coin  from  re- 
sources within  the  hank.     Now  the  reserve  was  sufficient  to 
make  all  the  payments  called  for  by  the  checks  of  depositors, 
in  coin  or  notes,  as  might  be  required,  and  actually  made 


44  MONETARY  AND   INDUSTRIAL  FALLACIES. 

them,  before  the  clearing  house  was  established.  When  we 
carted  specie  around,  in  my  younger  days,  from  bank  to  bank, 
we  paid  in  gold  the  checks  drawn  against  our  reserve  in  coin. 
The  checks  must  have  been  drawn  against  our  reserve,  be- 
cause our  reserve  made  all  the  payments.  Was  the  coin  we 
then  paid  out  on  our  checks  bank  credit,  or  even  bank  debt  ? 
It  is  true  the  coin  only  passed  from  one  bank  to  another,  but 
then  I  had  ocular  demonstration  that  it  was  solid  and  real, 
and  not  phantom  coin  that  paid  the  checks,  for  I  have  often 
seen  it  weighed  and  delivered.  Hence  it  seems  to  me  N.  S.  B. 
is  right  in  saying  that  it  is  the  reserve  that  makes  all  the 
payments,  and  that  the  bank  books  are  only  the  registers  of 
the  payments,  while  the  clearings  only  save  the  cartage  of 
coin  and  handling  of  notes  that  used  to  precede  the  entries 
on  the  registers  or  books,  as  we  call  them.  For  all  I  can 
perceive,  then,  we  used  to  deal  in  credit,  when  we  paid  coin, 
precisely  as  we  do  now.  That  we  deal  in  credit  now,  I  must 
insist,  for  all  the  books  I  ever  read  say  so,  and  therefore  I 
shall,  for  the  present,  insist  upon  it.  Some  writers  call  it 
bank  currency,  and  make  it  in  this  way  a  kind  of  money. 
I  have  seen  it  stated  that  Lord  Overstone,  who,  I  suppose, 
may  be  called  one  of  the  founders  of  the  present  system  of 
the  Bank  of  England  as  a  bank  of  issue,  maintains  the  con- 
trary. 

JV.  S.  B.  You  have  sustained  my  theory  better  than  I 
could  in  the  same  number  of  words,  Mr.  O.  S.  B.,  and  you 
have  given,  also,  a  practical  demonstration  of  the  correctness 
of  Lord  Overstone's  opinion.  Your  facts  prove  what  I  have 
often  asserted,  that  a  bank  of  deposit  and  discount  can  no 
more  deal  in  its  own  book  debt  than  a  house  can  stand  in 
the  air  without  foundation.  If  there  were  no  deposits  there 
could  be  no  such  thing  as  a  bank  of  deposit  and  discount :  a 
deposit  is  the  first  condition  of  its  existence.  If  it  be  true, 
as  your  writers  assert,  that  there  is  no  connection  between 
the  reserve  and  bank  debt  or  credit,  there  can  be  none  be- 
t\yeen  the  reserve  and  loans;  but  all  deposits  came  originally 
from  the  money  in  circulation :  they  still  come  from  that 
source  because  all  bank  debt  over  and  above  reserve  demon- 


MONETARY   AND   INDUSTRIAL  FALLACIES.  45 

strates  products  unsold,  and  the  liibor  to  produce  these  cost 
for  the  most  part  bank-notes  or  coin. 

0.  S.  B.  Suppose  a  bank  were  started  for  the  purpose  of 
dealin^f  in  credits  altogether,  either  with  or  witliout  any 
reserve,  but  with  the  obligation  to  pay  all  its  debts  in  coin : 
would  not  this  bank  deal  in  credit  altogether,  as  we  insist 
banks  now  do  ? 

N.  S.  B.  It  would  deal  extensively  in  debt,  and  not  much 
in  credit. 

0.  S.  B.    Why  do  you  make  such  an  absurd  reply  ? 

N.  S.  B.  Because  an  abstruse  question  requires  an  ab- 
struse answer,  as  one  of  the  Gymnosophists  taken  captive  by 
Alexander  the  Great,  rejoined,  when  asked  why  he  had  re- 
plied to  the  question,  Which  is  the  longest,  the  day  or  the 
night,  by  saying,  The  day,  by  one  day.  To  ask  me  whether, 
in  the  case  you  suppose,  bank  credit  would  circulate,  is  to 
ask,  what  seems  to  me  not  merely  an  abstruse,  but  an  absurd 
question.  Credit  implies  a  sale  of  something  on  time,  the 
seller  waiting  until  that  time  has  expired  for  payment. 
You  are  misled  by  the  word  credit.  You  might  with  as 
much  real  though  not  conventional  propriety,  ask  whether 
faith,  hope,  charity  and  time  circulate.  In  the  case  you  sup- 
pose, what  the  bank  would  lend  —  admitting  for  one  moment 
the  practicability  of  such  banking —  would  be  units  of  debt, 
evidenced  by  entry,  or  inscription,  if  you  please.  The  bor- 
rower and  depositor  would  need  an  authenticated  pass-book 
and  checks.  But  this  bank  would  not  deal  in  credit.  It 
would  deal  in  unit  dollars  of  its  own  debt  issued,  of  its  own 
and  other  bank  debt  deposited,  and  coin.  As  a  bank  of 
deposit,  it  would  deal  only  in  bank  debt  and  coin  deposited, 
and  not  in  its  own  debt  independent  of  deposits:  in  short,  it 
would  deal  only  in  deposits.  If  Lord  Overstone  meant  this, 
by  denying  that  deposits,  independently  of  the  reserve,  are 
currency,  he  was  right. 

0.  S.  B.  But  the  reserve  is  only  a  small  part  of  deposits : 
the  credit  entries  over  and  above  reserve  standhig  to  the 
credit  of  the  account  of  depositors,  are  inseparable  from  the 
reserve,  and  count  as  a  substitute  for  money  :  otherwise,  with 


46  MOJsETARY  AND  INDUSTRIAL  FALLACIES. 

a  reserve  of  only  ten  per  cent,  a  depositor  who  supposes  he 
has  one  thousand  dollars  in  bank  to  his  credit  has  only  one 
hundred.  Of  what  use  is  this  reserve,  except  to  supply 
retail  trade  ? 

N.  )S.  B.  If  you  fully  understand  the  reply  I  shall  make, 
you  will  in  time  give  up  the  absurd  theory  of  a  circulation 
of  credit,  or  a  setting  off  of  debt  and  credit.  The  founders 
of  the  present  system  of  note  issues  of  the  Bank  of  England 
supposed  the  notes  would  vary  as  gold,  if  used  in  their  stead, 
because  the  volume  of  each  would  be  nearly  the  same.  Un- 
questionably they  were  literally  correct :  it  is  simply  a  matter 
of  convenience.  But  probably  this  is  not  exactly  all  that 
they  supposed  or  took  it  for  granted  would  result.  They 
thought  that  these  notes  would  vary  in  England  with  banks, 
as  gold  varies  in  France  without  banks.  This  was  a  mistake, 
which  arose  from  regarding  gold  as  a  commodity,  like  cop- 
per or  wheat.  The  mercantile  theory  of  intrinsic  value  in 
gold  or  silver  is  well  enough,  and  in  fact  very  desirable,  in 
its  place.  The  sagacity  of  Smith  and  the  kind  of  banking 
in  his  day,  enabled  him  to  perceive,  in  spite  of  the  theory, 
the  necessity  of  a  reserve  varying  in  volume  within  short 
periods,  although  he  looked  only  at  the  money  side  of  the 
exchanges.  At  the  present  stage  of  development  of  pro- 
duction on  the  side  of  skilled  labor,  and  on  credit  through 
the  aid  of  bank  loans,  it  is  high  time  to  find  out  what  money 
really  is ;  whether  it  is  limited  by  one  commodity  like  gold 
out  of  hank,  or  only  hy  all  commodities  produced.  Because 
money  —  the  mercantile  theory  which  is  good  in  its  place,  to 
the  contrary  notwithstanding  —  is  conventional,  the  true 
question  under  any  monetary  system  is,  not  merely  how 
much  money  there  is  per  capita,  to  each  ten  millions  of  cap- 
ital, or  million  of  product,  but  what  is  the  total  of  exchanges 
of  all  kinds  it  causes  to  take  place?  Being  conventional  and 
auxiliary,  the  forces  which  move  it  are  production  and  com- 
merce. In  these  lies  at  this  time  the  real  disease  :  a  com- 
mercial and  banking  panic,  if  it  occurs,  is  not  the  disease, 
but  one  of  the  symptoms.  It  is  the  reserve  that  makes  all 
payments :  if  gold  or  notes  are,  in  consequence  of  a  loan, 


MONETARY   AND   INDUSTRIAL  FALLACIES.  47 

witlulrawn  from  it  to  pay  for  labor,  and  the  laborers  pay 
out  nine  tenths  of  the  money  within  a  week,  to  sui)j)ly  them- 
selves and  families,  in  consequence  of  which  it  is  within  that 
period  redeposited  in  the  same  bank  which  made  the  loan, 
it  is  credit  that  pays  for  the  labor  and  makes  the  purchases 
of  goods  at  retail,  if  it  be  true  that  credit  pays  for  the  same 
goods,  when  bought  at  wholesale.  But  it  is  not  true  that 
credit  pays  in  either  case.  If  A,  has  a  deposit  in  an  English 
bank  of  one  thousand  pounds,  and  makes  as  many  purchases 
by  the  use  of  his  deposit  as  if  he  had  it  in  his  safe  in  sover- 
eigns, the  effect  upon  the  variation,  even  of  gold,  is  the  same 
as  if  he  had  the  sovereigns  instead  of  the  deposit.  The  total 
of  his  deposit  is  the  total,  subject  to  one  qualification,  that  he 
would  have  in  cash  were  there  no  deposits.  The  qualifica- 
tion is,  the  addition  to  the  total  of  deposits  over  and  above 
what  they  Avould  have  been,  had  the  banks  been  deposit 
banks  only,  without  the  power  of  discounting.  The  differ- 
ence, whatever  it  may  be,  arises  from  the  expansion  of  cir- 
culation through  loans,  which  increase  the  volume  of  deposits 
in  excess  of  the  contraction  of  circulation  by  payments  of 
loans,  which  decrease  the  volume.  The  actual  verities  of 
the  case,  the  results,  are  precisely  the  same  as  in  Smith's 
time,  and  the  same  as  they  would  be  in  France,  if  banks 
were  established  and  the  coin  now  lying  in  "  hoard,"  econo- 
mized, say  to  the  amount  of  seventy-five  per  cent.,  so  far  as 
deposited  in  banks.  There  would  be  no  payments  made  in 
credit  in  that  case,  any  more  than  now,  under  our  banking, 
but  a  large  volume  of  circulation  of  money  on  credit  would 
appear  registered  on  bank  books,  giving  rise  to  production 
on  credit,  and  if  the  loans  were  not  limited  at  some  definite 
point,  production  on  credit  would  proceed  to  such  an  extent, 
if  the  conservative  instinct  of  the  people  did  not  prevent,  as 
to  add  largely  to  the  international  embarrassments  caused 
by  the  extension  of  the  credit  system  of  circulation,  aided  by 
the  improvements  in  machinery  and  the  other  accessories  of 
productive  power.  It  is  not  the  continually  increasing  econ- 
omy of  hand  labor  which  causes  a  want  of  harmony  in  pro- 
duction :  this  is  a  potent  auxiliary,  but  not  the  paramount 


48  MONETARY  AND   INDUSTRIAL  FALLACIES. 

cause,  for  that  cause  is  the  fact  that  so  much  labor  can  be 
fed  and  supported  in  producing  results  that  will  not  find  a 
consumer  or  cash  buyer  before  a  crisis  comes  which  ai^rests 
the  production.  The  crisis  is  too  long  delayed  :  it  does  not 
come  quick  enough  :  if  it  came  quicker,  it  would  be  lighter. 
It  is  the  expansion  of  circulation  which  raises  prices  and 
maintains  this  speculative  production,  under  the  guise  of 
rising  ^^I'ices,  being  international  as  well  as  national  in  its 
cause,  and  in  its  effects.  There  is  no  word  in  the  English 
language  to  express  the  results  as  a  whole,  nor  is  there  one 
to  express  the  remedy  or  the  paramount  counteracting  cause. 
All  the  terms  at  hand  are  Production,  Consumption,  Infla- 
tion, Expansion  and  Contraction,  Panic,  Crisis,  Plenty  and 
Scarcity  of  Money.  We  are  destroying  in  the  United  States 
as  well  as  consuming,  vast  quantities  of  valuable  timber,  and 
erecting  short-lived  buildings  and  improvements.  This  is 
not  called  speculation,  nor  is  it  really  such.  There  is  a  want 
,  of  harmony  in  our  production  :  the  improvements  in  cities 
are  in  advance  of  solid  improvements  in  the  countrj' ;  the 
native  population  is  abandoning  a  portion  of  the  covmtry 
where  it  has  lived  in  times  past,  and  departing,  not  only  to 
other  states  and  territories,  but  removing  to  towns  and  cities. 
The  paramount  cause,  and  the  only  one  which  can  be  im- 
mediately controlled,  is  precisely  the  one  which  the  sagacity 
of  Adam  Smith  enabled  him  to  point  out  as  a  matter  of  fact, 
—  the  excessive  expansion  of  circulation  of  money,  without 
which  so  much  labor  could  not  be  supported,  while  bringing 
about  the  resulting  want  of  harmony  in  production.  This 
cause  is  intensified  by  the  improvements  referred  to.  What 
I  aim  to  do,  is,  to  show  that  a  metallic  circulation  like  that 
of  France  is  the  safest,  the  surest,  and  steadiest  of  all  circu- 
lation, and  that  we  need  a  metallic  limitation  to  bank  loans, 
maintaining  itself  at  average  within  short  periods,  a  result 
very  difficult,  if  not  impossible  of  attainment  under  our 
system  of  banking  ;  and  attainable,  if  at  all,  under  national 
and  not  state  control. 

0.  S.  B.    I  shall  need  time  for  reflection  before  answering 
you,  but  for  the  present  I  cannot  give  up  the  credit  theory. 


MONETARY   AND  INDUSTRIAL   FALLACIES.  49 

I  perceive,  however,  I  think,  the  ground  of  your  argument. 
It  is,  that  although  the  mercantile  theory  of  intrinsic  value 
in  gold  and  silver  coin  has  a  conservative  and  steadying 
effect  in  maintaining  its  exchangeable  value  as  money, 
where  it  circulates  freely  outside  of  bunks  in  exchange  for 
commodities,  and  may  therefore  be  considered  as  true,  so  far 
as  people  act  upon  it,  yet,  when  it  is  banked  in  a  reserve  by 
sellers,  who  have  just  received  it  out  of  reserve  from  buy- 
ers, its  conventional  unit  value,  which  it  possesses  in  com- 
mon with  all  money,  and  which  in  reality  alone  makes  it 
money,  enables  banks  to  lend  and  borrowers  to  use  it  to  pay 
labor  faster  than  labor's  results  on  one  side  of  the  productive 
field  can  be  exchanged  for  labor's  results  on  the  other  side. 
Therefore,  the  only  way  to  force  the  exchanges  of  labor  and 
of  merchandise  to  perfect  themselves  within  short  periods 
is  to  make  metallic  banking  reserve  vary  within  the  same 
periods,  and  thus  prevent  the  expansion  of  its  circulation 
through  loans  from  proceeding  so  far  as  to  produce  a  bank-  • 
ing  and  commercial  crisis  before  it  is  arrested  by  a  contrac- 
tion of  circulation  through  payment  of  loans.  You  hold 
that  in  this  way  only  can  an  approximation  to  the  steadiness 
of  the  metallic  circulation  of  France  be  obtained.  You  say 
that  the  money  which  really  makes  the  payments,  whether 
there  are  clearings  are  not,  is  in  the  reserve,  while  each  de- 
positor makes  the  same  purchases  in  number  and  value  he 
would  do  if  his  deposit  were  all  in  gold,  or  all  in  bank- 
notes, —  the  difference  between  the  reserve  and  the  total  of 
deposits  being  money  economized.  This  follows,  you  say, 
from  the  conventional  character  of  all  money,  which,  not- 
withstanding the  mercantile  theory,  is,  judged  by  its  effects, 
only  a  process  for  the  distribution  by  exchange  of  the  fruits 
of  labor. 

N.  S.  B.  You  have  spoken  for  me  better  than  I  could 
have  done  for  myself.  It  is  immaterial,  after  what  you  have 
said,  what  you  suppose  yourself  to  think  about  double  bar- 
ter, commodity  and  ci'edit.  Your  very  statement  is  suffi- 
cient, without  argument. 

0.  F.  R   It  seems  to  me  that  O.  S.  B.  is  like  a  general 

4 


50  MONETARY   AND   INDUSTRIAL   FALLACIES. 

who  has  signed  articles  of  capitulation,  and  still  insists  that 
he  has  not  been  beaten.  I  shall  not  capitulate  for  the  pres- 
ent. When  clearing  is  all  the  time  gaining  more  ground, 
and  the  use  of  gold  is  getting  out  of  fashion  more  and  more, 
it  is  folly  to  talk  about  increasing  reserves.  As  small  checks 
come  more  and  more  into  use,  we  can  liberate  more  and 
more  gold  and  save  expense. 

S.  L.  I  have  seen  small  checks  tried  to  pay  wages,  but 
they  were  not  liked,  because  the  men  said  they  were  only  a 
source  of  vexation  and  annoyance,  and  the  banks  disliked 
them.  The  employers  all  had  to  fall  back  upon  bank-notes 
and  change :  they  said  the  banks  told  them  they  might  as 
well  be  all  day  paying  out  currency  as  to  force  the  banks  to 
do  it,  to  say  nothing  of  the  trouble  of  identification. 

C.  B.  C.  S.  L.  is  right,  no  doubt.  The  men  like  to  see 
their  money  as  quickl}^  as  possible.  O.  P.  E.  begins  to  talk 
sensibly  again.  He  said  he  was  in  favor  of  a  good  reserve, 
but  he  wants  to  extend  clearings,  and  I  suppose  that  means 
to  give  more  bank-notes,  because  he  says  he  wants  to  sell  off 
the  gold  as  fast  as  he  clears.  I  think  he  has  now  become 
my  ally,  and  I  invite  him  to  help  me  get  rid  of  the  banks, 
and  start  my  scheme  with  the  convertible-bond  attachment, 
which  will  be  a  perfect  regulation  of  itself.  His  scheme  of 
extending  credit  and  clearing,  and  economizing  gold,  when 
there  is  not  gold  enough  now  to  do  any  good,  will  not  work, 
unless  he  adopts  my  regulator  and  gives  up  his  gold.  Am  I 
not  right,  Mr.  O.  S.  B.  ? 

0.  S.  B.  I  think  you  have  the  best  of  the  argument,  but 
there  is  a  practical  difficulty  in  the  way.  You  have  fairly 
lost  France,  accoi'ding  to  N.  S.  B.'s  demonstration,  for  her 
financial  stability  has  been  shown  by  him  to  result  from  the 
impossibility  of  loaning  to  excess.  Excess  is  the  very  thing 
you  are  asking  for,  because  you  cannot  avoid  it  through  the 
regulating  influence  of  the  convertible-bond  attachment,  even 
if  you  could  borrow.  This  regulator  is  as  useless  as  the 
safety-valve  of  an  engine  that  has  no  furnace  or  boiler ;  for 
as  the  government  will  not  bank,  where  will  you  borrow 
your  new  issues  of  notes  ;  and  if  you  do  not  borrow  of  gov- 


MONETARY   AND   INDUSTRIAL  FALLACIES.  51 

ernment,  how  are  they  to  be  issued  at  all  ?  On  the  other 
hand,  if  O.  P.  E.  can  prevail  upon  the  banks  to  extend  the 
credit  system  too  far,  and  clear  for  eveiything,  he  will  lose 
even  the  regulating  attachment  of  a  fluctuating  reserve.  As 
a  practical  man,  I  think  it  is  high  time  to  inquire  where  we 
stand. 

N.  S.  B.  Let  us  adjourn  this  debate,  and  meet  again 
Monday,  a  week  hence,  at  two  o'clock,  p.  m.  S.  L,  will  ob- 
tain work  by  that  time,  in  this  vicinity,  in  all  probability  ; 
and  if  he  cannot,  O.  S.  B.  must  make  him  a  small  loan  to 
supply  his  necessities.  C.  B.  C,  meantime,  will  be  thinking 
how  he  can  make  his  convertible-bond  attachment  work, 
without  working  the  machine  itself,  and  O.  P.  E.  how  he 
can  clear  without  gold.  When  every  one  had  more  to  do 
than  he  could  attend  to,  we  never  should  have  thought  of 
making  a  serious  matter  of  a  meeting  which  occurred  so  ac- 
cidentally as  this,  but  we  liave  more  time  now :  these  are 
matters  of  engrossing  interest :  we  represent  all  parties  but 
the  bullionists,  and  there  are  so  few  of  them  they  need  no 
representative. 


MONDAY,    2    P.    M.       DIALOGISTS    MEET  :     DIALOGUE    CON- 
TINUED. 

0.  P.  E.  Well  met,  gentlemen  !  we  are  prepared,  I  trust, 
to  finish  the  debate  now.  I  can  say  all  I  have  to  say  in  a 
few  words. 

S.  L.  I  am  still  in  the  neighborhood  without  work,  al- 
though I  have  the  promise  of  it  next  week,  and  meantime 
O.  S.  B.  has  kindly  acted  upon  N.  S.  B.'s  suggestion  :  other- 
wise I  can't  say  what  would  have  happened  to  me.  It  is 
hard  to  want  honest  work,  and  not  be  able  to  get  it. 

C.  B.  C.  That  is  true,  under  all  circumstances  ;  but  when 
finance  ministers  are  in  league  with  banks  to  contract  the 
currency,  and  starve  honest  men  who  are  clamoring  for  work 
in  the  old  forges  and  shops  they  have  been  forced  to  aban- 
don, it  is  not  only  a  pity,  but  it  is  a  crime.  I  think  I  have 
studied  out  a  plan  to  make  the  convertible  bond  attachment 


52  MONETARY  AND  INDUSTRIAL  FALLACIES. 

work  not  only  itself,  but  the  machine,  as  O.  S.  B.  called  it. 
Every  capitalist  engaged  in  manufacturing  ought  to  have 
the  right  to  give  his  property  as  security  to  the  general  gov- 
ernment for  notes.  This  will  set  the  machine  in  motion  in 
spite  of  O.  S.  B.'s  raillery,  and  regulate  the  movement  in 
company  Avith  the  convertible  bonds.  This  starts,  and  at 
the  same  time  regulates,  the  machine,  and  afterwards  the 
bonds  will  do  the  rest.  So  far  from  being  beaten  by  France, 
we  shall  move  in  advance  ;  for  while  we  get  rid  of  banks, 
we  turn  the  government  into  something  as  good  as,  and  in 
fact  better,  than  a  bank.  I  think  my  scheme  is  better  than 
O.  P.  E.'s  clearing  arrangement ;  for  if  we  are  to  lose  all 
our  hold  upon  gold,  as  unquestionably  we  must,  and  O.  P. 
E.  himself  vii'tually  admits,  while  at  the  same  time  denying 
it,  we  need  to  have  a  firm  basis  for  our  credit,  which  will 
then  represent  the  whole  capital  of  the  United  States,  while 
O.  P.  E.'s  credit  represents  nothing  but  the  beggarly  capital 
of  banks  which  are  failing  all  the  time.  I  hope  you  are 
all  ready  to  give  up  your  unfounded  fancies,  and  listen  to 
reason. 

S.  L.  I  am  rewarded  now  for  waiting  to  attend  at  this 
meeting.  I  cannot  express  my  gratitude  for  the  noble  plan 
of  C.  B.  C.  I  thought  he  seemed  to  be  at  a  loss  last  week, 
but  he  was  only  waiting  to  gather  strength  and  annihilate 
his  opponents. 

0.  P.  E.  I  do  not  believe  C.  B.  C.'s  attachment  will  work 
at  all.  It  is  the  same  old  plan  tried  by  John  Law  and  oth- 
ers, to  coin  everytliing  into  money  :  it  will  not  work,  and 
would  starve  more  laborers  than  it  could  feed. 

0.  S.  B.  That,  I  believe,  is  true :  there  is,  after  all,  but 
one  kind  of  currency  that  is  really  safe  and  steady  ;  and  that 
is  gold,  and  paper  duly  regulated  by  gold.  Cities  have  been 
growing  rapidly,  and  the  excess  of  population  in  them  has 
been  supplied  not  only  by  immigration  from  foreign  coun- 
tries, but  from  the  surrounding  country.  Again,  hand  work 
of  all  kinds  is  continually  more  and  more  economized,  and 
some  people  are  in  favor  of  abolishing  the  patent  laws,  or 
very  materially  curtailing  the  rights  of  inventors.    They  say 


MONETARY   AND   INDUSTRIAL   FALLACIES.  53 

hand  labor  has  been  economized  too  much,  and  it  is  time  to 
stop.  I  do  not  beUeve  this,  because  it  looks  like  admitting 
civilization  to  be  a  failure  after  it  has  asserted  its  mastery 
over  the  forces  of  nature,  beyond  a  certain  point.  Still, 
when  thinking  men  entertain  such  opinions,  it  is  certain  evi- 
dence that  there  is  some  very  serious  trouble  in  the  social 
system.  Commercial  and  banking  crises  seem  to  be  getting 
more  and  more  severe,  and  it  seems  to  me  that  an  heroic 
remedy  of  some  kind  is  needed. 

0.  P.  E.  You  are  a  good  way  beyond  a  glut,  Mr.  O.  S. 
B.,  now ;  and  if  you  keep  on,  you  will  not  only  give  up 
double  barter  and  credit,  but  the  impossibility  of  overpro- 
duction ;  and  to  give  up  these  is  to  give  up  all  our  old  polit- 
ical economy,  which,  dry  as  it  is,  has  nevertheless  nourished 
us  from  our  youth  up. 

0.  S.  B.  Truth  is  what  I  am  trying  to  pursue,  Mr. 
O.  P.  E.,  wherever  it  may  lead  me.  I  am  willing  to  give 
up  all  old  opinions,  if  necessary.  I  stick  to  credit  yet,  how- 
ever, and  have  not  entirely  given  up  the  others.  I  am  in 
a  state  of  doubt.  I  invited,  upon  my  own  responsibility, 
C.  W.  M.  to  attend  to-day,  but  he  could  not  come.  He  is 
an  old  manufacturer,  who  has  been  engaged  for  years  in 
manufacturing,  and  he  says  that  it  is  like  going  up  for  a 
time  and  then  coming  down  for  a  time,  and  that  all  manu- 
facturers would  make  more  money  if  they  could  keep  their 
production  steadier.  He  thinks  they  would  produce  nearly 
as  much  in  the  long  run  :  at  all  events,  he  is  sure,  he  says, 
of  one  thing,  —  that  they  would  make  more  money  by  not 
crowding  the  market,  and  keeping  always  about  the  same 
number  of  hands.  I  asked  him  whether  he  could  not  stop 
for  a  time  and  regulate  his  own  production  to  suit  himself ; 
but  he  said  this  was  impossible,  for  he  must  be  in  market 
with  his  goods,  prepared  to  sell  when  all  were  ready  to  buy, 
and  when  the  market  was  rising,  and  then  have  his  fall  with 
the  rest.  If  he  stopped  at  all,  unless  all  the  rest  would  stop, 
he  might,  he  said,  as  well  stop  altogether.  For  the  rest,  he 
must  rely  upon  his  own  experience  and  judgment  in  styles 
and  qualities,  and  sometimes  he  would  hit  the  nuirket  ex- 


54  MONETARY   AND   INDUSTRIAL  FALLACIES. 

actly,  and  after  making  enough  to  balance  a  good  deal  of 
loss,  make  a  profit  besides.  He  succeeded  in  starting  a  train 
of  thought  in  my  mind  about  markets,  considered  inter- 
nationally as  well  as  nationally.  I  also  invited  an  acquaint- 
ance,—  D.  G.  M.,  —  who  is  an  old  and  successful  dry-goods 
merchant,  but  he  is  engaged  to-day,  attending  an  auction 
sale  of  dry  goods.  He  says  there  is  risk  enough  in  other 
branches  of  trade  as  well  as  dry  goods ;  that  success  depends 
upon  activity  combined  with  sagacity,  very  much  as  with 
manufacturers.  A  dealer  ought  to  know  all  the  time  about 
what  the  market  needs,  and  have  some  power  of  finding  out 
what  it  will  be  likely  to  want.  He  ought  also  to  have  judg- 
ment sufficient  not  to  run  all  his  capital  into  margins,  by 
having  too  large  an  amount  of  goods  on  hand,  and  too  much 
outstanding  in  debts  due  for  goods  sold ;  and  that,  as  a 
banker,  I  and  others  were  blamable  for  allowing  such  large 
lines  of  acconnnodation  to  customers,  and  so  out  of  propor- 
tion to  their  capital.  But  the  grand  secret  of  all  he  said 
was,  to  buy  at  the  lowest  figures  possible.  Merchants,  he 
said,  were  loaded  down  and  overstocked  by  buying  too 
heavily  on  a  rising  market,  and  taking  the  load  from  the 
shoulders  of  manufacturers,  and  thus  inducing  them  to  go 
on  and  glut  the  whole  market.  He  asked  me  if  I  had  never 
noticed  that  there  was  everywhere  in  all  countries  a  grand 
rise  going  on  for  some  years,  and  then  a  grand  fall ;  and 
that  the  policy  of  a  merchant  was  to  keep  himself  from 
being  overstocked  as  the  goods  were  going  up,  and  to  have 
his  capital  well  in  hand  to  buy  after  they  had  come  down. 
This,  he  said,  was,  as  nearly  as  he  could  tell  it,  the  grand 
secret  of  success.  I  told  him  I  knew  there  was  a  general 
depression  throughout  Europe,  but  I  never  supposed  there 
was  any  general  cause  at  work.  I  supposed  there  was  an 
accidental  coincidence  of  local  causes.  He  said  there  was  a 
general  cause,  and  I  was  surprised  at  the  intelligence  and 
great  clearness  witli  which  he  explained  it.  He  says  a  great 
rise  must  necessarily,  in  the  very  nature  of  things,  be  at- 
tended with  a  great  fall  ;  that  if  people  work  too  much 
to-day  at  anything,  they  must  work  less  at  it  to-morrow,  in 


MONETARY   AND   INDUSTHIAL   FALLACIES.  55 

order"  to  luivc  the  necessary  average.  I  asked  him  how  it 
was  possible  for  the  same  cause  to  be  in  operation  every- 
where ?  liow  he  could  show  producers  who  were  sellers 
everywhere,  unless  he  could  find  as  many  producers  every- 
where that  were  buyers,  at  the  same  time  ?  He  said  that 
wherever  there  were  buyers  and  sellers,  he  supposed  there 
must  be  money,  for  he  could  find  no  other  use  for  money. 
I  asked  him  where  all  the  money  could  be  found  to  make  so 
much  buying  and  selling,  when  prices  were  going  up.  He 
replied  that  this  was  an  affair  I  ought  to  understand  better 
than  himself,  for  I  was  a  banker,  but  he  acted  upon  the  idea 
he  had  just  before  referred  to,  —  that  money  was  intended 
for  use,  and  the  more  buying  and  selling,  so  much  the  more 
was  money  used  to  buy  ;  and  the  less  buying  and  selling,  so 
much  the  less  was  money  used  ;  and  where  there  was  any- 
thing to  sell  that  anybody  wanted  to  buy,  there  was  always 
money  enough.  He  said  if  money  was  intrinsically  valuable 
for  any  other  purpose  but  to  use,  he  had  never  found  it  out. 
People,  he  said,  had  been  trying  for  ages  to  find  out  some 
other  purpose,  but  they  had  never  found  it  yet,  any  more 
than  they  had  perpetual  motion.  He  is  a  man  of  vigorous 
common  sense,  though  without  much  of  what  is  called  edu- 
cation. 

0.  p.  E.  What  did  he  say  about  the  general  expansion 
which  took  place  in  credits  throughout  the  commercial  world 
a  few  years  since,  attended  by  great  speculation,  followed 
by  the  terrible  collapse  of  both,  under  which  all  nations, 
especially  the  United  States,  are  now  suffering  ? 

0.  S.  B.  He  did  not  talk  about  either.  As  I  have  already 
stated,  he  said  money  was  intended  for  use,  and  the  more 
buying  and  selling  there  is,  so  much  moi-e  use  is  there  for 
money.  He  spoke  as  if  he  thought  everybody  ought  to  take 
this  for  granted.  His  remarks  set  me  thinking,  and  I  at 
once  thought  about  barter  and  double  barter,  of  which 
N.  S.  B.  spoke  the  other  day.  He  said,  as  you  may  recol- 
lect, that  when  we  send  merchandise  abroad,  —  for  instance, 
a  cargo  of  wheat,  —  and  draw  a  bill  of  exchange  against  it 
upon  the  consignee,  and  sell  the  bill  in  the  market  to  a  mer- 


56  MONETARY   AND   INDUSTRIAL  FALLACIES. 

chant  who  buys  English  dry  goods,  it  is  an  entire  mistake  to 
suppose  that  the  wheat  is  bartered  for  the  dry  goods,  as 
writers  say,  even  if  the  bill  is  exchanged  directly  for  the 
soods.  You  doubtless  remember  that  he  declared  this  to 
be  one  of  the  fallacies  resulting  from  an  ignorance  —  or,  to 
speak  with  more  respect,  and  perhaps  more  correctly,  the 
non-perception  —  of  the  conventional  character  of  all  money, 
illustrated  with  such  vigorous  common  sense  by  my  old 
friend  the  dry  goods  merchant.  He  said  that  the  bill  of  ex- 
change is  substantially  a  time  check,  because  the  bill  must 
be  discounted  sooner  or  later  by  a  bank ;  and  it  is  therefore 
not  money,  nor  credit,  but  an  instrument,  long  time  in  use, 
authorizing  the  person  to  whom  either  money  or  goods  had 
been  sent,  to  pay  the  drawee  or  holder  with  money  actually 
in  hand  or  to  come  in  hand  by  sale  of  the  goods ;  that  the 
bills  now  drawn  against  merchandise  were  discounted  by 
banks  who  paid  out  of  their  reserve  as  they  pay  on  all  loans ; 
and  that  if  it  was  impossible  to  dispel  the  illusion  that  this 
was  a  case  of  credit  and  barter  at  one  and  the  same  or  at 
different  times,  monetary  science  might  as  well  be  aban- 
doned altogether. 

0.  P.  E.  You  have  not  yet  given  us  in  full  D.  G.  M.'s 
explanation  of  the  manner  in  which  a  general  expansion  of 
credit  and  speculation  could  occur  throughout  Europe  and 
the  United  States  at  one  and  the  same  time,  followed  by  a 
general  collapse  of  both,  as  it  has  been  of  late. 

0.  S.  B.  I  was  about  to  say  that  we  had  that  day  a  meet- 
ing of  bank  directors  :  after  the  business  of  the  meeting  was 
finished,  D.  G.  M.  remained,  and  we  naturally  fell  into  con- 
versation, and  had  proceeded  as  far-  as  I  have  related,  when 
an  old  acquaintance  of  mine,  who  is  interested  in  several 
furnaces,  looked  in.  I  invited  him  to  be  seated  ;  he  had  come 
to  town  to  enter  into  a  contract  to  furnish  the  iron  for  a  long 
railroad  bridge.  Speaking  of  hard  times  and  the  existing 
depression,  as  D.  G.  M.  and  I  had  been  doing,  the  iron  con- 
tractor had  a  good  opportunity  to  tell  us  how  low  iron  of  all 
grades  had  fallen  in  price,  and  he  thought  the  low  prices 
would  stimulate  consumption.    He  disliked  to  hear  the  word 


MONETARY  AND   INDUSTRIAL   FALLACIES.  57 

overproduction,  even  lisped,  but  he  stated  some  curious  facts 
about  iron.  lie  said  when  the  American  furnaces  were 
running  full  blast,  the  English  were  doing  the  same,  and 
now,  when  they  were  running  short  in  time,  hands,  and 
metal,  the  English  were  doing  likewise.  If  the  American 
and  English  producers  could  contrive  to  manage  production 
in  such  a  way  that  when  one  set  would  be  running  full  blast, 
the  other  would  be  sure  to  run  short,  instead  of  both  running 
full  at  the  same  time  and  short  at  the  same  time,  inasmuch 
as  there  must,  on  the  average,  be  as  much  short  as  full  run- 
ning, it  would  equalize  the  production  and  steady  the  in- 
dustry, to  the  great  benefit  and  comfort  of  all  the  employed, 
as  well  as  all  the  producers.  He  said,  a  few  years  since, 
it  took  all  the  English  and  American  furnaces  to  supply 
the  demand,  but  now  the  American  could  much  more  than 
supply  it.  The  English,  he  said,  had  many  countries  for 
customers,  while  the  producers  of  the  United  States  had 
hitherto,  for  the  most  part,  only  their  own.  He  said  the 
English  had  supplied  enormous  quantities  of  iron  rails  to 
different  countries  of  the  world,  but  the  demand  had  arisen 
almost  everywhere  and  then  fallen  off  everywhere  at  the 
same  time,  while  production  had  risen  and  fallen  in  like 
manner. 

S.  L.  It  seems  to  me  as  if  the  producers  might  carry  out 
some  such  plan  as  the  iron  contractor  mentioned,  but  that 
would  not  help  us  much,  because  it  would  only  keep  us  at 
work  half  the  time. 

0.  S.  B.  You  are  mistaken.  It  would  equalize  the  pro- 
duction, not  perfectly,  it  is  true,  but  imperfectly,  neverthe- 
less. It  might  be  necessary  to  discharge  some  hands  in  the 
United  States,  because  it  would  be  necessary  to  reduce  the 
product  when  the  American  turn  to  reduce  had  come  round, 
but  it  would  help  to  diminish  the  range  of  variation  in  de- 
mand and  supply,  by  limiting  production  artificially.  Of 
course,  however,  it  was  all  a  matter  of  fancy.  He  did  not  es- 
teem it  practicable;  he  only  expressed  a  wish  that  it  w^ere  so. 

C.  B.  0.  I  have  heard  a  great  deal  without  saying, 
hitherto,  one  word  in  reply.     If  such  an  arrangement  were 


68  MONETARY  AND   INDUSTRIAL   FALLACIES. 

made,  the  British  would  be  sure  to  make  the  most  out  of  it. 
Don't  yield  your  rights,  jNIr.  S.  L.  !  With  a  per  capita  cur- 
rency like  that  of  France,  in  the  United  States,  the  British 
would  be  driven  out  entirely.  We  can  have  it  with  silver 
and  greenbacks.  I  am  ready  to  enter  into  a  contract  to  get 
rid  of  all  the  gold,  if  I  can  have  plenty  of  greenbacks  and 
silver.  O.  P.  E.  would  be  my  ally  in  all  parts  of  the  field, 
did  he  not  hate  silver  as  much  as  I  do  gold.  His  credit  and 
clearing  away  of  gold  make  him  naturally  an  ally,  but  he 
says  that  is  in  the  future.  He  does  not  expect  to  get  rid  of 
gold  so  as  to  make  it  a  matter  of  curiosity  for  numismatists, 
and  occasionally  to  be  laid  by  in  cotton  wool  or  a  stocking, 
only  as  fast  as  he  clears.  Why  can't  he  be  consistent  and 
clear  it  away  at  once,  and  give  us  the  per  capita  we  demand, 
with  silver  ? 

0.  P.   E.    You  are   getting   away  from   me  again,  Mr. 

C.  B.  C.  I  want  to  hear  more  about  the  general  expansion 
and  contraction  of  credit  and  speculation,  throughout  the 
commercial  world,  referred  to  by  O.  S.  B.'s  friends. 

0.   S.   B.     The   iron   contractor   seemed   to   agree   with 

D.  G.  M.  in  opinion  about  the  general  expansion  of  prices 
and  of  production.  Neither  of  them  even  named  credit  or 
speculation,  because  each  spoke  of  the  kind  of  production 
he  knew  most  about.  Of  course  it  would  have  been  absurd 
for  either  to  have  charged  the  other  with  abusing  his  credit 
or  with  speculating :  the  terms  would  have  been  out  of  place 
and  W'ithout  meaning,  except  so  far  as  it  may  be  speculation 
to  produce  too  much  at  a  time  ;  but  this  is  not  the  ordinary 
meaning  of  the  word.  D,  G.  M.  said  that  as  Great  Britain 
manufactured  for  the  world,  there  must  be  a  general  expan- 
sion of  demand,  preceding  the  expansion  of  supply  ;  that 
she  did  not  intentionally  manufacture  for  nothing,  and  so  far 
as  she  did  not  get  ready  pay  in  raw  material  and  the  abso- 
lute necessaries  of  life,  she  must  lend,  and  take  some  form 
of  debt  to  show  for  it.  In  that  case  the  countries  borrowing 
would  use  their  own  absolute  necessaries  and  raw  material 
together  with  English  cloth,  hardware,  colonial  produce, 
etc.,  to  turn  out  to  their  own  laborers  who  were,  in  addition 


MONETARY  AND   INDUSTRIAL   FALLACIES.  59 

to  other  work,  laying  down  English  rails  on  new  railroads. 
He  said  tliat  to  bring  all  this  to  pass,  the  laborers  must  be 
paid  in  money,  and  paper  money  and  banks  were  increas- 
ing everywhere  except  in  France,  and  that  the  English 
expansion  of  production  was  sustained  by  a  general  bank 
expansion  at  home  as  Avell  as  abroad.  This,  he  said,  was 
certainly  true  as  between  England  and  the  United  States, 
and  more  or  less  true  as  between  England  and  other  coun- 
tries besides  the  United  States.  The  English  expansion,  in 
both  of  its  aspects,  was  as  injurious  to  the  United  States  as 
their  own.  The  true  practical  view  of  the  matter,  in  his 
opinion,  was,  that  the  facilities  for  borrowing  money,  im- 
provements in  machinery,  and  the  other  accessories  of  manu- 
facturing power,  as  well  as  in  agricultural  tools,  the  extension 
of  railroads,  beneficent  as  were  the  latter  in  some  of  their 
effects,  increasing  all  together  and  at  equal  pace,  had  ren- 
dered it  necessary  to  inquire,  not  so  much  wdiether  produc- 
tion should  be  lessened  on  the  whole,  as  whether  there  could 
not  be  some  plan  devised  to  limit  and  control  it,  so  as  to  pre- 
vent the  enormous  losses  arising  from  overworking  and  then 
being  forced  to  stop,  —  iii  short,  to  bring  up  the  average 
within  short  rather  than  long  periods. 

N.  S,  B.  This  is  a  sound,  practical  view  of  the  present 
condition  at  which  production  and  commerce,  considered 
internationally  as  well  as  nationally,  have  arrived.  The 
opening  of  what  is  called  the  Renaissance  Period  in  Europe, 
and  the  discovery  of  America,  followed  by  an  enormous  in- 
crease of  metallic  production,  advanced  prices  regularly 
without  allowing  them  to  fall  back.  It  has  been  said  by 
some  writers  that  such  has  always  been  the  result  of  an 
increased  metallic  production.  This  was  the  case,  undoubt- 
edly, after  the  discovery  of  America.  It  was  not  a  real  ad- 
vance in  wealth  merely  in  consequence  of  increased  metallic 
production  going  to  the  mints,  but  the  increasing  quantities 
going  into  arts  and  manufactures,  and  the  stimulus  to  pro- 
duction and  commerce,  from  constantly  rising  prices.  But 
a  rise  of  this  kind,  if  possible,  could  not  be  beneficial  if  ex- 
tended indefinitely.     It  is,  at  this  time,  however,  impossible, 


60  MONETARY  AND   INDUSTRIAL  FALLACIES. 

because  the  conditions  which  made  the  rise  not  only  pos- 
sible but  unavoidable  at  the  period  named,  have  so  changed, 
as  to  prevent  any  further  rise,  and  not  only  so,  but  they  have 
changed  so  much,  as  to  make  a  gradual  fall  probable.  This 
can't  be  understood  by  the  commercial  world  in  a  day :  time 
is  required,  but  knowledge  will  come  at  last,  if  we  succeed 
in  making  political  economists  understand  the  true  theory  of 
money,  so  as  to  teach  it  to  the  next  generation. 

0.  S.  B.  You  refer,  I  suppose,  to  changes  in  commerce 
and  metallic  production. 

N.  S.  B.  I  mean  that  if  the  ratio  of  annual  metallic  pro- 
duction to  total  mass  previously  produced,  and  still  existing, 
is  one  per  cent.,  the  ratio  of  annual  increase  in  commerce  to 
commerce  previously  existing  is  greater.  This  is  one  of  the 
reasons  for  making  silver,  as  well  as  gold,  money  everywhere; 
but  there  need  be  no  hurry  about  it :  the  scientific  and  com- 
mercial world  have  plenty  of  time  before  them  to  learn  the 
difference  between  what  is  called  double  barter  and  barter- 
ing gold  and  silver  for  copper  and  iron,  —  in  short,  the  con- 
ventional character  of  money,  which  exists  for,  because  it 
is  the  invention  of  mankind,  by  a  natural  instinct,  if  you 
please.  The  present  condition  of  the  production  and  com- 
merce of  the  United  States  and  England,  as  well  as  other 
parts  of  the  world,  however,  has  no  relation  to  the  product 
of  either  gold  or  silver.  It  arises  from  the  causes  you  have 
named,  in  great  measure.  It  is  not  credit  and  speculation,  as 
O.  P.  E.  supposes.  These  are  merely  the  most  convenient 
terms  which  offer,  to  cover  up  the  ignorance  which  an  ad- 
herence to  old  abstract  theories  makes  unavoidable.  The 
grand  business  of  the  world  is  commerce,  and  the  industry 
which  supplies  it,  and  the  terms  Credit  and  Speculation  ough,t 
to  be  understood  in  a  sense  entirely  different  from  that  in 
which  O.  P.  E.  uses  them,  to  be  applicable.  We  must  un- 
derstand credit  to  mean  spending  money,  for  the  most  part 
lent,  or  brought  to  the  spending  hand  indirectly,  through 
money  borrowed  by  way  of  profits  and  dividends,  to  pay  for 
labor,  whose  product  cannot  find  a  cash  buyer  and  therefore 
blocks  the  exchanges,  while  speculation  means  the  estimated, 


MONETARY   AND   INDUSTRIAL   FALLACIES.  61 

or  perhaps  not  duly  estimated  chances  of  Aich  a  buyer  within 
a  reasonable  period.  I  think,  therefore,  a  chapter  in  political 
economy  should  be  introduced,  entitled,  — 

OF  PRODUCTION  AND  CONSUMPTION  UPON  CREDIT  BAL- 
ANCED BY  PRODUCTION  AND  CASH  SALES  IK  THE  FUT- 
URE, CONSIDERED  NATIONALLY  AND  INTERNATION- 
ALLY. 

0.  p.  E.  Of  what  benefit  to  political  economy  can  such 
new-fangled  terms  be,  to  say  nothing  of  a  serious  attempt  to 
discuss  them  ?  Is  not  political  economy  to-day  as  perfect  a 
science  as  the  wit  of  man  can  make  it  ?  Must  he  not  have 
omnipotent  power  to  create  new  causes  which  shall  show  us 
new  phenomena,  before  he  can  have  a  new  science,  which 
even  to  mention  is  impious  ?  It  is  absurd  to  talk  of  mar- 
kets :  there  is  always  a  market  somewhere  ;  our  merchants 
are  too  lazy  and  indifferent  to  find  them.  All  we  need  is  a 
little  more  enterprise,  a  little  more  instead  of  less  credit, 
and  by  more  clearing,  an  economy  of  that  costly  metallic 
product,  gold. 

«S'.  L.  That  sounds  right  to  me,  although  I  do  not  quite 
understand  it  all,  and  I  cannot  form  even  a  conception  of 
production  and  consumption  on  credit.  Before  O.  P.  E. 
began,  I  was  about  to  ask  how  it  was  possible  to  produce 
anything  upon  credit.  If  there  is  such  a  thing  as  producing 
upon  credit,  there  must  be  such  a  thing  as  working  upon 
credit,  and  I  can't  conceive  what  that  is,  unless  it  means 
working  for  nothing,  and  agreeing  to  pay  for  the  privilege 
some  time  after,  which  is  the  most  absurd  thing  I  ever  heard 
of.  If  I  earn  my  wages,  and  my  employer  pays  me  cash,  — 
and  cash  I  must  have,  in  order  to  buy  what  I  want,  —  how 
in  the  name  of  common  sense  can  I  be  said  to  be  workinir  on 
credit  ? 

C.  B.  C.  Well  said,  Mr.  S.  L.  I  have  written  a  gi-eat  deal 
about  the  French  per  capita,  greenbacks,  convertible  bonds, 
and  silver,  but  I  do  not  believe  I  ever  uttered  as  much  com- 
mon sense  as  you  have  in  those  few  words.  You  have  fur- 
nished me  with  an  unanswerable  arffument,  and  I  shall  fight 


62  MONETARY  AND  INDUSTRIAL  FALLACIES- 

for  the  cause  with  more  zeal  hereafter.  If  you  get  the  cash, 
what  care  j'ou,  and  what  difference  can  it  make  to  you 
where  it  comes  from  ?  O.  P.  E.  seems  to  be  getting  more 
reasonable,  too,  because  he  is  getting  more  and  more  against 
gold,  and  we  have  no  dispute  to  settle  about  overproduction, 
as  we  both  believe  there  can  be  none. 

iV.  /S.  B.  It  seems  to  be  understood  that  we  are  to  talk 
freely,  and  use  plain  terms  :  there  was  a  tacit  understanding 
between  us  to  that  effect,  and  it  seems  that  we  have  all 
availed  ourselves  of  it.  Our  meeting  was  accidental,  and  I 
am  very  glad  it  occurred.  But  before  we  go  any  further,  I 
have  a  request  to  make.  An  acquaintance  of  mine,  with 
whom  I  have  had  many  conversations,  and  from  whom  I 
have  learned  what  you  call  the  new  ideas  and  new-fangled 
terms,  is  writing  a  book  which  he  calls  "  The  Political  Econ- 
omy of  Great  Britain,  the  United  States,  and  France,  in 
the  Use  of  Money  :  a  New  Science  of  Production  and  Ex- 
change." I  advised  liim  to  put  it  all  in  the  form  of  dia- 
logue, but  his  reply  was  that  the  subject  was  so  dry  and  un- 
interesting, that  if  an  American  book  of  the  kind  were  com- 
posed in  that  form,  and  people  were  thus  lured  to  buy  and 
read  it,  they  would  be  disappointed  before  reading  it  half 
through,  and  would  conclude  that  they  had  been  inveigled 
into  reading  something  which  is  disagreeable  in  itself,  and  no 
dialogue  can  make  interesting.  Upon  the  principle  of  fair 
play,  thei-efore,  he  concluded  to  adopt  a  plain  didactic  style. 
With  your  consent,  however,  I  shall  report  to  him  all  we 
have  said,  in  the  form  of  a  dialogue,  and  let  him  make  it  a 
part  of  his  book. 

0.  S.  B.  I  have  no  objection,  certainly.  I  agree  with 
you  substantially,  and  therefore  with  him,  I  suppose.  I 
think  our  ideas  are  in  many  respects  new,  and  I  must  confess 
that  I  have  obtained  mine  from  you,  Mr.  N.  S.  B.,  to  a  con- 
siderable extent,  and  so,  I  suppose,  indirectly  from  him.  This 
is  empliatically  a  proper  time  for  all  such  works.  If  any 
man  tliiiiks  he  has  anything  new  to  say  upon  these  subjects, 
by  all  means  let  him  say  it,  for  the  minds  of  tliinking  men 
are  turned  in  that  direction  in  all  commercial  countries,  be- 


MONETARY   AND   IXDUSTKIAL   FALLACIES.  63 

cause  we  witness  everywhere  the  same  phenomena :  it  is 
only  a  question  of  more  or  less.  Right  reason,  therefore, 
would  seem  to  say  at  the  very  threshold  of  inquiry,  that 
there  must  be  some  general  cause  in  operation  to  produce 
such  general  results. 

G.  B.  C.  I  have  no  objection,  but  of  course  you  will  not 
mention  names.  You  have  bantered  me,  Mr.  N.  S.  B.,  in  this 
debate,  and  sometimes  you  have  been  rather  severe.  You 
must  mollify  your  words  a  little,  when  you  commit  them  to 
paper.  You  know  my  candor  and  good  faith  in  all  I  have 
said. 

N.  S.  B.  I  shall  set  down  nothing  in  malice  certainly, 
and  I  shall  neither  satirize  nor  lampoon.  Your  opinions, 
Mr.  C.  B.  C,  have  been  and  still  are,  more  or  less  modified, 
entertained  by  many.  They  have  a  perfect  right  to  those 
opinions,  although  they  seem  absurd  to  me.  If  I  have  said 
anything  too  severe,  I  shall  write  it  down  with  good  humor, 
which  sweetens  all  controversies. 

iS'.  L.  I  have  no  objection  even  to  the  use  of  my  name, 
but  as  the  rest  are  not  reported,  of  coui'se  mine  will  not  be. 

0.  P.  E.  Of  course  I  can  have  no  objection,  if  names 
are  not  given,  and  my  opinions  are  reported  correctly.  On 
the  whole,  however,  that  can  make  but  little  difference,  for 
my  opinions  will  be  found  in  nearly  all  the  books.  I  do  not 
believe  that  labor  is  a  measure  of  value :  I  believe  there  can 
be  no  overjjroduction,  and  all  we  need  is  markets  :  I  believe 
excessive  use  of  private  and  mercantile  credit  and  not  of 
money,  together  with  speculation,  to  be  the  cause  of  the 
present  troubles.  Of  bank  credit  and  of  convertible  bank- 
notes, I  do  not  think  there  is  much  danger,  without  specula- 
tion. Therefore,  I  repeat,  economize  gold  and  extend  clear- 
ings. 

C.  B.  C.  What  are  the  opinions  of  the  writer  you  re- 
fer to,  Mr.  N.  S.  B,,  and  especially  what  does  he  think  about 
money  ? 

N.  S.  B.  To  coin  a  word,  I  think  his  views  might  be 
called  composite.  He  examines  all  the  different  theories: 
begins   with   development,  goes  back   by  analysis,  demon- 


64  MONETARY   AND   INDUSTRIAL  FALLACIES. 

strates  inductively  by  phenomena,  and  fortifies  liis  opinion 
by  results.  While,  therefore,  he  respects  all  theories  as  con- 
taining more  or  less  truth,  if  examined  at  the  proper  angle 
of  observation,  his  leading  and  central  idea  of  money  is  de- 
termined by  its  use  and  the  results  it  accomplishes. 

0.  P.  E.     What  is  that  central  idea  ? 

iV.  S.  B.  I  have  stated  it  repeatedly.  Judged  by  results, 
money  is  a  conventional  process,  and  its  value  lies  in  what  it 
buys  and  the  work  it  accomplishes. 

0.  P.  E.  He  would  take  away  not  only  all  the  fact,  but 
even  the  little  poetry  there  is  about  money.  Would  he  de- 
prive the  world  of  glittering  hoards,  shining  treasure,  and 
golden  hopes  ? 

N.  S.  B.  The  world  can  never  be  deprived  of  the  ideas 
which  beget  that  poetry,  and  it  will  therefore  remain,  but 
the  highest  poetry  is  that  of  absolute  truth.  The  mercantile 
theory  of  money  he  regards  as  equally  desirable  and  inde- 
structible in  its  place. 

0.  P.  E.  When  and  where  is  it  in  place,  and  when  and 
where  out  of  place  ? 

N.  S.  B.  He  says  the  time  when  it  is  in  place  is  when 
holders  at  large  have  money,  and  the  place  itself  is  their 
own  reserve,  whether  that  be  a  pocket,  a  safe,  or  a  stocking. 
The  time  when  it  is  out  of  place  is  when  the  money  is  in 
banking  reserve.  He  says  that  the  true  cause  of  the  steadi- 
ness of  metallic  money  lies  in  the  fact  that  the  ability  to  ex- 
change and  consume  actually  vary  very  slowly  upon  the  aver- 
age, and  hence  the  increase  of  commerce  is  gradual,  and  that 
at  the  present  time  the  changes  of  gold  coin  as  a  conven- 
tional commodity  compared  with  its  existing  mass,  are,  for  all 
practical  purposes,  equally  slow,  and  hence,  aside  from  bank- 
ing reserve,  it  may  be  said  that  gold  does  not  vary.  Nothing 
can  exceed  it,  and,  in  fact,  nothing  can  equal  it  in  steadiness. 
But  useful  and  true  as  is  this  fact  in  its  place,  it  ceases  to  be 
true  in  banking  reserve,  because  the  absolute  truth  of  the 
conventional  character  of  all  money  causes  it  to  cease  there. 

Banks  are  strengthened  quite  as  much  by  reducing  their 
debt  as  by  adding  to  their  reserve,  because  it  has  the  same 


MONETARY   AND   INDUSTRIAL   FALLACIES.  65 

effect  upon  the  ratio  of  total  reserve  to  total  debt :  in  other 
words,  it  limits  the  circulation  of  money,  or  rather  contracts 
it  precisely  to  the  same  extent.  This  is  strongly  put  by 
Mr.  Bonaniy  Price  in  his  "  Principles  of  Currency." 

Bank-notes  would  answer  in  reserve  quite  as  well  as  gold 
if  tht'y  could  limit  circulation  with  as  much  certainty.  The 
metal  is  necessary,  because  the  object  to  be  gained  is  to  limit 
circulation  after  all  bank  loans  have  proceeded  to  a  certain 
point,  as  circulation  is  limited  under  a  purely  metallic  cur- 
rency. It  always  would  be  if  the  ratio  were  within  short 
averages  definite,  and  not  indefinite.  What  writers  have  to 
learn  and  impress  upon  the  next  generation  of  bankers,  and 
if  they  can  learn  it  soon  enough,  on  this,  is,  as  he  says,  the 
great  fact  of  the  conventional  character  of  all  money ;  and 
then  they  will  perceive  that  the  next  thing  to  be  learned  is 
the  circulation  or  use  of  money  in  paying  for  labor  as  well  as 
commodities,  as  distinguished  from  the  volume,  and  that  the 
true  object  of  a  reserve  is  to  limit  the  use  of  money  in  buy- 
ing labor  as  nearly  as  possible  by  the  sale  of  labor's  products 
in  market.  He  says  all  money  is  the  same  in  substance  be- 
cause the  same  in  results,  and  that  the  time  will  soon  come 
when  bankers  will  learn  that  what  they  actually  use  is 
money  and  not  credit,  barter,  or  double  barter.  To  reduce 
bank  debt  anywhere  is  to  strengthen  reserve  everywhere, 
because  it  shows  an  equal  amount  of  labor's  products  ex- 
changed for  consumption.    This  is  his  central  idea  of  money. 

C.  B.  C.  Does  he  deny  that  the  United  States  have  the 
right  to  issue  greenbacks  ? 

N.  S.  B.  He  admits  what  he  calls  the  deplorable  neces- 
sity of  issuing  government  paper  money  sometimes,  to  take 
the  place  of  hoarded  treasure,  but  that  the  volume  ought 
to  be  carefully  limited,  and  the  whole  immediately  retired 
as  soon  as  possible.  He  says  the  United  States  issued  by 
far  too  much,  and  ought  to  have  retired  it  all  by  1870. 

C.  B.  C.  So  much  the  worse  for  him  and  his  theories. 
That  is  all  I  want  to  know. 

0.  P.  E.  He  surely  cannot  think  of  making  an  attack 
upon  bank    credit  and  clearing,  well   established    as   these 

5 


6Q  MO^'ETARY   AND   INDUSTKIAL  FALLACIES. 

are.  It  would  be  like  Don  Quixote  eliarging  upon  the  wind- 
mill, not,  however,  that  I  would  compare  bank  credit  to  a 
windmill,  by  any  means.     He  never  can  succeed  in  making  i 

me  believe  that  bank  credit  can  be  dispensed  with,  and  that 
the  extension  of  clearings  will  not  make  gold,  except  to  a 
very  slight  extent,  useless.  We  have  not  yet  reached  the 
limit  of  economy  in  gold. 

N.  S.  B.  I  have  thought  that  C.  B.  C.  and  O.  P.  E. 
were  like  two  mathematical  lines  which  continually  ap- 
proach without  meeting ;  but  I  believe  now  there  is  a  fair 
prospect  of  their  meeting  at  no  distant  period.  After  the 
greenback  party  had  nominated  their  candidate  for  presi- 
dent, some  of  their  speakers  very  adroitly  brought  in  O.  P.  E. 
and  his  friends  as  authority  to  sustain  their  assertions  about 
gold.  If  gold  is  shortly,  by  universal  clearing,  to  be  rel- 
egated to  barbarous  countries  like  France,  why  not  clear  it 
away  at  once  and  resort  to  government  currency  with  the 
convertible-bond  attachment?  C.  B.  C.  and  his  friends 
would,  perhaps,  by  the  use  of  what  they  call  the  argumentum 
ad  Iwminem  have  made  a  very  strong  point  against  O.  P.  E., 
if  they  had  been  a  little  more  practical.  They  ignored  the 
banks,  because  they  did  not  know  that  it  is  impossible  to  use 
a  paper  currency  with  any  kind  of  success  without  banks ; 
there  must  be  some  contrivance  for  contraction  as  well  as 
expansion ;  the  convertible  bond  attachment  is  insufficient 
of  itself.     They  ought  to  have  stuck  to  the  banks. 

0.  S.  B.  Well  said,  Mr.  N.  S.  B. !  This  remarkable  fact 
was  brouoht  to  the  attention  of  conservative  thinkers  and 
bankers  during  the  canvass.  It  was  said  that  writers  of  O.  P. 
E.'s  school  had  declared  that  when  an  efflux  of  gold  occurred 
in  England,  and  the  bank  had  brought  about  an  influx,  by 
raising  the  rate  of  interest,  merchants  supposed  that  the  bank 
would  procure  in  the  gold  the  means  of  discounting  again, 
and  money  would  be  plenty  ;  but  it  was  all  a  mercantile  de- 
lusion, because  the  gold  sovereigns  which  came  back  were 
never  paid  out,  and  were  not  needed  for  any  purpose.  The 
bank,  therefore,  had  the  same  power  of  discounting  without 
the  additional  gold  as  with  it.     O.  P.  E.'s  friends,  as  well  as 


MONETARY   AND   INDUSTRIAL    FALLACIES.  67 

himself,  were  also  referred  to  as  authority,  to  support  the 
very  proposition  he  has  been  maintaining,  about  the  exten- 
sion of  clearings  and  liberating  gold  in  proportion.  You 
may  therefore  well  say  that  O.  P.  E.  and  his  friends  and  C. 
B.  C.  and  his  friends  are  not  so  far  apart  as  O.  P.  E.  may 
think.  If  C.  B.  C.'s  i)arty  had  understood  business  matters 
a  little  better,  and  the  absolute  necessity  of  having  banks  in 
the  United  States  and  England  to  supply  the  loss  of  gold 
with  bank  debt,  they  would  not  have  been  so  far  behind  O. 
P.  E.'s  party.  By  the  way,  what  is  the  opinion  of  your 
friend  who  is  writing  the  book  with  the  new  theories,  to 
which,  so  far  as  you  have  brought  them  forward,  T  must  con- 
fess that  for  all  practical  purposes  you  have  converted  me  ? 

N.  S.  B.  He  thinks  the  time  has  come  to  settle  by  absolute 
and  complete  demonstration  what  is  the  advantage,  by  show- 
ing what  is  the  proper  function  of  gold  in  banking  reserve. 
If  this  cannot  be  done,  an  issue  of  government  notes  to  an 
amount  agreed  upon  by  all  bankers,  to  be  increased  not  more 
than  one  and  a  half  per  cent,  annually  in  addition  to  care- 
fully estimated  allowance  for  diminution  through  wear  and 
tear  and  losses,  might  possibly  do  as  well  as  gold  lying  with- 
out any  certain  advantage  in  a  reserve.  He  considers  this 
an  open  question  so  long  as  O.  P.  E.  and  his  friends  com- 
mand and  control  the  opinion  of  the  banking  world,  upon  the 
subject  of  variation  in  reserve,  expansion  of  circulation,  bank 
credit  or  debt,  as  they  call  it,  and  liberating  more  gold,  as  the 
phrase  is,  by  extending  clearings.  He  says  all  the  real  con- 
tractions of  even  convertible  currency  have  taken  place  after 
convertibility  had  stopped  by  the  suspension  of  the  banks,  as 
in  1837  and  1857.  He  thinks  those  who  maintain  the  neces- 
sity of  keeping  as  much  gold  as  has  always  been  found  in 
banking  reserve,  taken  as  a  whole,  in  the  United  States,  as 
well  as  those  who  maintain  the  necessity  of  keeping  more, 
have  been  logically  driven  by  the  arguments  of  some  of  O.  P. 
E.'s  party  to  show  what  it  is  there  for ;  how  it  ought  to  be 
kept,  what  relation  it  has  in  point  of  fact,  and  what  relation 
it  ouorht  to  have  in  point  of  science,  to  bank  loans.  His  opin- 
ion is,  that  Mr.   Bonamy  Price,  in  his  "  Principles  of  Cur- 


68  MONETARY   AND   INDUSTRIAL  FALLACIES. 

rency,"  is  well  entitled  to  say  that  his  demonstration  of  the 
existence  of  an  actual  excess  of  gold  in  banking  reserve,  over 
and  above  what  is  needed  in  England,  ever  since  1819,  is  as 
complete  as  any  in  Euclid.  There  has  ahvays  been  a  much 
larger  amount,  both  in  Great  Britain  and  the  United  States, 
than  was  necessary  to  supply  the  loss  caused  by  the  outgoing 
stream  of  gold. 

0.  P.  JE.  Why  then  does  he  not  accept  the  demonstration, 
and  if  he  can  help  the  cause  of  true  monetary  science  by 
another  book  in  addition  to  all  those  we  have  now,  show 
some  plan  by  which  clearings  can  be  still  further  extended 
and  gold  saved  ? 

iV.  S.  B.  He  says  that  so  far  as  the  country,  or  even  the 
commercial  world  at  large  is  concerned,  it  is  an  utter  delu- 
sion to  suppose  that  gold  can  be  advantageously  saved  by 
any  further  attempt  at  economy,  and  in  proof  of  his  assertion, 
he  cites  two  instances  in  monetary  history  to  sustain  him, 
together  with  the  opinion  of  Adam  Smith.  The  first  in- 
stance is  that  of  Scotland  about  1765-70,  when  bank-notes 
had  taken  the  place  of  coin  to  the  utmost  practicable  extent, 
and  constituted  at  least  seventy-five  per  cent,  of  the  circula- 
tion. The  circulation  was  in  all,  two  millions,  and  there  was 
in  the  country,  both  in  and  out  of  reserve,  one  million  of 
pounds  of  coin.  The  other  instance  is  that  of  the  United 
States  in  1857,  when  the  whole  effective  circulation  was 
about  five  hundred  millions,  and  there  were  two  hundred  and 
fifty  millions  in  gold,  of  which  one  hundred  millions  were 
hoarded.  With  merely  convertible  bank  debt,  at  least  one 
half  of  the  effective  circulation  must  be  covered  by  metal 
including  what  is  hoarded.  The  case  of  Scotland  is  one  of 
a  convertible  bank-note  currency  without  banks  of  deposit 
and  discount;  the  case  of  the  United  States  is  one  of  both. 
Adam  Smith's  opinion  was  that  convertible  bank-notes  (in 
Scotland)  only  took  the  place  of  a  like  amount  of  metal, 
which  would  otherwise  be  found  in  their  place,  and  that 
their  volume  ought  to  be  a  little  short  of  that  of  the  metal, 
although  in  Scotland  the  notes  rather  more  than  occupied  it. 
Hence,  you  may  clear  as  much  gold  as  you  like  out  of  bank- 


MONETARY   AND   INDUSTRIAf.   FALLACIES.  69 

ing  reserve  ;  you  will  not  thereby  diminish  the  total  c/f  the 
country  at  large.  The  more  you  save  by  clearing,  the  more 
you  will  drive  into  hoards. 

0.  S.  B.  What  does  he  mean,  then,  by  saying  tliat  Mr. 
Price  has  actually  demonstrated  an  excess  of  gold  in  Eng- 
land ? 

N.  S.  B.  He  means,  I  suppose,  that  the  influx  of  gold 
through  what  is  called  a  favorable  state  of  the  exchanges 
and  artificial  rise  of  the  bank's  rate  of  interest,  is  not  impor- 
tant in  its  bearing  upon  the  discount  market,  merely  because 
it  furnishes  the  means  of  putting  more  cash  or  notes  in  circu- 
lation. He  understands  Mr.  Price  as  in  effect  saying.  There 
is  abundance  of  gold  already  in  the  bank  to  supply  circula- 
tion ;  if  imported,  it  cannot  go  into  circulation,  and  it  is  not 
wanted  for  actual  consumption.  Hence,  if  it  is  wanted  for 
no  other  purpose,  the  importation  is  useless  as  "well  as  expen- 
sive. Therefore  his  demonstration  can  be  attacked  success- 
fully only  by  proving  the  premise  that  the  importation  of 
the  metal  is  for  purposes  of  circulation  only  to  be  false,  be- 
cause contrary  to  truth,  or  fallacious,  because  it  does  not  con- 
tain the  whole  truth. 

He  thinks  that  if  the  only  use  of  gold  in  banking  reserve 
is  to  supply  circulation  to  those  who  actually  want  gold,  iNIr. 
Price's  demonstration  is  unanswerable,  and  upon  the  theory 
of  double  barter  and  commodity,  he  thinks  the  case  might 
as  well  be  given  up,  because  to  answer  all  the  calls  of  those 
who  want  gold  to  use  in  "  double  barter,"  the  supply  is  more 
than  ample.  He  regards  Mr.  Price  as  having  done  good  ser- 
vice to  the  cause  of  monetary  science,  by  putting  to  thinkers 
and  writers  upon  monetary  science,  this  question,  in  effect : 
Of  what  use  is  gold  in  banking  reserve,  except  to  supply  the 
calls  of  those  who  want  it  to  put  in  circulation  ?  If  wanted 
for  no  other  purpose,  an  excess  is  always  kept,  and  the  ex- 
pense might  be  saved,  no  matter  what  would  become  of  the 
coin,  if  not  kept  there. 

C.  B.  C.  N.  S.  B.  has  stated  the  case  fairly.  We  have 
always  used  this  argument  to  sustain  our  theory  of  paper 
money,  either  with  or  without  the  convertible-bond  arrange- 


70  MONETARY  ^ND   INDUSTRIAL  FALLACIES. 

ment,  or  attachment,  as  some  of  yon  call  it.  If  the  move- 
ment of  gold  by  export  and  import,  out  of  the  grand  consoli- 
dated reserve  of  the  Bank  of  England,  as  N.  S.  B.  calls  it, 
has  no  effect  in  the  way  of  making  money,  either  less  or 
more  abundant,  of  what  use  is  the  movement,  and  why  should 
the  import  be  accelerated  by  raising  the  rate  of  interest? 
Paper  money  never  moves  unless  the  movement  has  some 
meaning.  Banks  always  intend  to  check  borrowing,  when 
they  raise  the  rate  of  interest ;  but  here,  rise  in  the  rate 
causes  an  expansion  by  bringing  in  more  gold.  This  expan- 
sion is  the  very  opposite  of  contraction,  certainly.  Here,  I 
must  confess,  is  a  riddle  harder  to  solve  than  any  the  Sphinx 
ever  proposed.  With  government  issues  and  the  convertible 
bond,  paper  given  in  exchange  for  bonds  will  always  mean 
expansion,  and  the  converse  exchange,  contraction.  I  doubt 
whether  the  political  economists  who  favor  convertibility  and 
gold  reserves,  and  oppose  my  monetary  scheme  and  silver 
coinage,  really  know  what  they  want  themselves.  When 
there  is  not  gold  enough  in  England  to  supply  the  circulation, 
and  an  importation  seems  nevertheless  to  have  no  effect  be- 
cause not  wanted,  they  must  use  something  else  :  it  is  that 
same  pernicious  bank  currency,  called  deposits,  which  the 
banks  of  the  United  States  have  always  dealt  in,  and  are 
now  contracting,  when  honest  men  like  S.  L.  are  begging  for 
work. 

>S'.  L.  It  is  astonishing  that  any  one  who  hears  C.  B.  C.'s 
arguments  should  remain  unconvinced.  It  is  a  question  of 
plain  common  sense :  abundance  of  money  must  give  abun- 
dance of  work,  and  contraction  of  money  must  contract  work. 
It  must  be  to  the  interest  of  the  banks  to  make  hard  times. 

0.  P.  E.  But  as  the  imported  gold  is  not  used,  while 
nevertheless  its  arrival  is  looked  upon  with  satisfaction,  as 
promising  to  make  money  moi'e  plenty,  how  does  your  friend 
expect  to  show  that  the  premise  of  Mr.  Price  is  false  ? 

N.  S.  B.  He  has  no  such  expectation.  Assuming  banking 
reserve  to  be  kept  in  the  right  manner  and  upon  the  right 
principle  in  England,  the  movement  of  gold  is,  as  Mr.  Price 
states,  without  the  slightest  importance.    Upon  that  assump- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  71 

tion,  gold  can  be  economized  much  more  than  it  ever  has 
been,  and  without  any  extension  of  clearing,  a  large  amount 
can  be  "  liberated."  O.  P.  E.  need  not  wait  for  that  ex- 
tension :  he  may  liberate  gold  at  once  in  very  large  sums.  In 
fact,  it  is  doubtful  whether  C.  B.  C.'s  ideas,  if  modified  some- 
what, and  made  more  practical,  might  not  be  advantageously 
substituted  for  the  partially  liberating  process,  by  liberating 
gold  altogether,  and  taking  its  place. 

0.  P.  E.  After  all  he  has  to  say,  as  you  state,  about 
credit  and  clearing,  would  he  turn  paper  money  theorist  ? 

N.  S.  B.  By  no  means.  He  wants  a  system  which  will 
give  a  steadiness  to  production,  as  neai'ly  as  possible,  like  that 
of  France.  If  writers  like  you,  and  bankers,  continue  to  lib- 
erate gold,  he  thinks  you  might  as  well  liberate  it  altogether, 
and  agree  to  keep  a  steady  reserve  of  sound  government 
paper  —  sound,  because  issued  in  such  amounts  as  to  keep,  as 
nearly  as  possible,  the  whole  volume  equal  to  the  total  of  coin 
if  kept  and  used  as  it  ought  to  be.  He  thinks  the  volume 
should  not  exceed  two  hundred  millions,  and  that  the  volume 
of  bank-notes  should  be  reduced  to  a  like  total,  for  that  pur- 
pose. 

(7.  B.  C  That  would  make  a  contraction  more  severe 
than  any  we  have  ever  suffered  from  in  the  United  States. 

0.  P.  E.  He  accepts  the  demonstration,  then,  on  our  side, 
but  carries  it  so  far  as  to  exclude  gold  altogether. 

N.  S.  B.  Nothing  of  the  kind.  He  merely  insists  that 
Mr.  Price  has  demonstrated  to  every  practical  man  the 
want  of  any  effective  relation  between  bank  loans  and  de- 
posits on  the  one  hand,  and  bank  reserve  on  the  other,  beyond 
the  simple  one  of  having  always  enough  gold  to  meet  calls, 
and  that  there  is  an  abundance  for  that  purpose  on  hand,  in- 
dependently of  the  movements  referred  to.  Beyond  this 
point,  metallic  reserve  is  not  required  under  the  English 
system  of  banking,  as  every  banker  in  the  United  States 
knows  it  is  not  under  the  American.  The  same  rule  may  be 
laid  down  in  respect  to  all  banking,  and  even  the  redemption 
of  bank-notes,  where  the  banks  make  no  deposit  loans.  It 
was  the  only  rule  in  force  with  the  Scotch  banks  in  Smith's 


72  MONETARY   AND   INDUSTRIAL  FALLACIES. 

time.  The  banks  of  issue  were  only  required  to  redeem 
their  circulating  debt  in  the  shape  of  bank-notes  in  metallic 
money  on  demand,  keeping  as  much  or  as  little  as  they  chose. 
Such  is  the  rule  which  governs  all  English  and  American 
banks.  The  latter  are  required  to  redeem  their  circulating 
debt  in  metal,  and  their  fixed  or  book  debt  in  the  same  man- 
ner, unless  they  modify  their  liability  by  special  contract. 
For  the  most  part  it  may  be  said  that  the  banks  in  the 
United  States  redeem  their  "  inscribed  "  debt  in  bank-notes, 
and  thfe  English  banks  in  gold.  The  American  banks  have 
both  circulating  and  inscribed  debt,  and  the  English,  for  the 
most  part,  inscribed  only,  to  provide  for.  With  some  excep- 
tions, this  may  be  laid  down  as  a  general  rule  in  all  countries 
where  there  are  banks.  The  Bank  of  France  is  an  excep- 
tion, because  it  keeps  a  very  large  reserve. 

0.  P.  E.  Wherein,  then,  does  he  consider  the  demonstra- 
tion at  fault  ? 

N.  S.  B.  He  does  not  consider  it  at  fault,  if  the  opinion 
generally  entertained  is  true.  He  insists  that  those  who  be- 
lieve that  metallic  banking  reserve  ought  to  be  kept  in  the 
manner  in  which  it  is  now  kept,  not  only  in  the  United 
States  and  England,  but  in  every  country  where  banking 
prevails  (inasmuch  as  deposit  banking,  which  means  simply 
keeping  depositors'  money  without  using  it,  can  hardly  be 
said  to  exist  now),  are  estopped  by  Mr.  Price's  demonstra- 
tion from  asserting  that  the  influx  of  gold  by  importation,  or 
the  replenishing  of  banking  reserve  with  additional  metal, 
has  of  itself  any  relevancy  to  banking  so  long  as  the  one  con- 
dition before  mentioned  is  maintained.  In  short,  he  con- 
siders i\Ir.  Price  as  having,  in  a  very  forcible  manner,  demon- 
strated that  there  is  no  practical  relation  between  banking 
reserve  and  banking  accommodations  save  this  one,  that  all 
banks  must  keep  enough  to  meet  calls ;  and  as  Mr.  Price  has 
clearly  shown,  and  every  practical  banker  knows,  banks 
everywhere,  as  a  general  rule,  keep  a  much  larger  amount 
than  they  need  for  this  purpose.  It  would  not  be  very  wide 
of  the  truth  to  say  that  all  banks,  as  a  rule,  keep  more  than 
twice  that  amount.     The  banks  of  New  York,  as  every  old 


MOXKTAKY   AND   INDUSTRIAL   FALLACIES.  73 

banker  knows,  closed  in  1857  witli  full  coffers.  Such  excess 
has  probably  always  been  the  rule  with  the  German  banks. 
In  fact,  he  thinks  it  may  be  laid  down  as  a  rule,  that  there  is 
no  definite  relation,  except  the  one  stated  between  reserve 
and  bank  debt,  in  any  form.  Tlie  question  raised  by  Mr. 
Price  may  therefore  be  said  to  relate  not  only  to  United 
States  and  English  banking,  but  to  that  of  the  commercial 
world. 

0.  P.  E.  He  goes  farther,  then,  than  we  do.  He  thinks 
gold  useless  in  the  reserve.  We  shall  never  give  up  gold  en- 
tirely. When  the  possibility  of  much  greater  economy  is  thus 
demonstrated,  we  only  insist  on  availing  ourselves  of  it  by 
clearing.     Economy  of  gold  does  not  imply  its  abandonment. 

N.  S.  B.  That  is  true.  But  he  insists  that  changes  are 
continually  taking  place  by  the  development  of  national  in- 
dustry, as  well  as  by  the  continual  advance  of  civilization. 
The  advance  of  civilization,  he  says,  is  the  advance  of  man's 
power  over  the  raw  material  and  forces  of  nature.  The  im- 
provements in  tools  and  machinery  have  facilitated  the  pro- 
duction, not  only  of  those  things  needed  to  supply  civilized 
and  relative,  but  also  absolute  wants.  This  advance,  like 
that  which  came  by  Promethean  fire,  is  desirable  in  itself, 
when  it  moves  so  smoothly  and  evenly  that  it  is  not  subject 
to  sudden  checks  from  the  rude  forces  which  limit  it.  Ger- 
many insisted  upon  having  the  golden  apple  of  discord,  and 
she  received  it  with  the  French  indemnity.  Her  loss  is 
greater  than  her  gain.  The  extension  of  banking  and  econ- 
omy in  gold  has  introduced  her  to  banking  and  commercial 
crises,  and  her  budget  has  a  loan  in  prospect.  Germany  is 
politically  strong,  but  she  is  now,  through  over-exertion  and 
excess  of  monetary  machinery,  financially  weak.  She  has 
wasted  vast  sums  as  the  result.  France,  on  the  other  hand, 
though  politically  weak,  is  financially  strong,  and,  in  a  social 
point  of  view,  not  given  to  change.  He  considers  the  bank- 
ing, commercial,  and  industrial  depression  of  Germany,  in  its 
present  extent,  as  accidentally  occurring  at  the  same  time 
with  that  of  the  United  States  and  Great  Britain,  for  the 
reasons  just  given,  although  there  can   be  no  doubt  that 


74  MONETARY  AND  INDUSTRIAL  FALLACIES. 

independently  of  that  coincidence,  a  general  depression 
now  exists  throughout  the  commercial  world.  He  says,  fur- 
thermore, that  the  unparalleled  industrial  depression  of  the 
United  States  ought  to  be  received  as  a  practical  demonstra- 
tion of  the  fact,  not  that  there  has  been  too  much  labor  ex- 
pended, but  too  much  in  certain  quarters. 

0.  P.  E.  You  have  merely  referred  to  the  phenomena 
and  not  to  the  operative  cause.  Where  does  he  think  is  the 
flaw  in  the  argument  of  those  who  maintain  that  the  move- 
ment of  gold  is  important  for  the  purpose  of  suj)plying  the 
needs  of  circulation  ? 

N.  S.  B.  He  thinks  it  lies  in  the  mercantile  theory  of 
intrinsic  value  in  gold,  silver,  or  any  other  money,  which, 
although  denied  in  terms,  is  admitted  in  fact ;  in  the  as- 
sumption implied  by  the  terms  Barter,  Commodity,  Stand- 
ard, etc.,  that  gold  is  an  end  in  itself,  therefore,  instead  of 
being  only  means  to  an  end.  That  an  import  of  gold  makes 
discounts  easier,  and  therefore  money  more  plenty  in  the 
sense  that  bank  accommodations  are  more  plenty,  is  un- 
doubtedly true.  And  he  asks:  why  is  it  true?  It  is  true, 
he  says,  not  because  the  gold  is  needed  for  actual  circulation, 
because  there  is  enough  already  in  reserve,  and  in  fact  much 
more.  Not  a  sovereign  of  the  imported  gold  going  into  the 
bank  vaults  is  wanted  for  that  purpose,  and  probably  not 
a  single  sovereign  will  be  paid  out  of  it,  and  yet,  the  bank 
rate  of  discount  drops,  and  "  money  is  easier."  What  is  the 
reason  ?  The  true  reason,  he  says,  is,  that  money  is  not  a 
commodity ;  not  a  subject  of  barter ;  but  a  conventional 
arrangement  of  man's  invention,  controlled  by,  and  not  con- 
trolling him.  Because  it  is  a  conventional  arrangement  en- 
tirely, it  may,  through  the  highly  artificial  arrangement  of 
deposit  loans,  be  used  to  excess. 

0.  P.  E.     Wherein  lies  excess  upon  his  theory? 

N.  S.  B.  It  lies  in  producing  faster  than  selling,  and  in 
holding,  by  the  aid  of  bank  loans,  too  large  an  amount  of 
grain  and  provisions,  raw  produce,  and  sometimes  securities, 
in  the  shape  of  bills  drawn  against  these.  The  temporary 
rise  in  price  of  domestic  productions,  of  grain  and  provisions, 


MONETARY   AND    IXDUSTRIAL   FALLACIES.  75 

and  rtiw  muterial,  in  England,  is  the  result  of  excessive 
loans  which  are  made  without  any  reference  to  their  bank- 
ing reserve,  on  the  part  of  the  London  and  other  English 
banks.  These  loans  raise  the  prices  of  all  the  merchandise 
on  sale,  first,  by  enabling  those  who  have  bought,  to  hold  by 
the  aid  of  bank  loans,  and  secondly,  by  making,  not  the  total 
volume  or  quantity  of  money  in  the  reserve  greater,  but  less, 
by  expanding  the  circulati(jn  or  power  of  paying  out  money 
in  the  purchase  of  goods,  exactly  in  proportion  to  the  expan- 
sion of  loans.  And  liere,  Mr.  O.  P.  E.,  if  you  will  give  up 
for  one  moment  all  prejudice  and  all  pride  of  opinion,  you 
can  get  a  glimpse  of  the  fallacy  which  has  misled  you  and 
Mill,  as  well  as  Mr.  Price  himself,  and  induced  you  to  sup- 
pose that  a  bank  deals  in  ordinary  credit.  I  think,  however, 
I  can  furnish  you  an  expression  which  will  convey  your  real 
meaning  better  than  the  one  you  employ,  and  it  is  applica- 
ble to  all  bank  loans,  in  whatever  part  of  the  world  they  are 
made.  You  do  not  really  mean  that  a  bank  deals  in  credit, 
when  you  say  so.  Such  an  expression  is  really  absurd,  and 
I  correct  it  in  order  to  make  your  meaning  plainer,  even  to 
yourself.  What  you  mean  is,  that  the  bank  loans  a  power 
to  buy  on  credit,  which  buying  is,  in  its  character  and  in  its 
effects,  the  same  as  any  other  buying  on  credit,  where  one 
merchant  buys  of  another  on  time,  and  gives  him  a  bill  or 
note,  or  wlien  he  is  merely  charged  in  account.  You  hold 
that  this  is  the  only  effect  of  the  loan  in  the  way  of  raising 
prices.  You  hold,  therefore,  —  to  use  a  common  expression,  — 
that  money  is  no  more  plenty  after  the  loan  than  it  was  be- 
fore, or,  if  it  is,  that  it  is  only  in  the  shape  of  a  power  to  buy 
on  credit,  which  circulates.  Which  of  these  alternatives 
gives  your  real  meaning  ?  You  have  never  defined  it.  It  is 
important  to  the  argument  that  you  do. 

0.  P.  E.  I  have  not  a  very  clear  idea  myself,  I  must 
admit,  since  you  have  driven  me  to  an  exact  definition  ;  but 
I  suppose  the  meaning  of  the  expression  —  that  a  bank  deals 
in  credits  —  to  be,  that  the  credit  is  the  same  with  any  other 
by  which  one  is  enabled  to  purchase.  The  borrower  uses 
the  credit  to  buy  with,  by  means  of  a  check,  and  the  very 


76  MONETARY  AND  INDUSTRIAL  FALLACIES. 

use  of  it  extinguishes  it,  by  setting  it  off  against  some  other 
credit,  or  perhaps  it  might  be  said  in  different  words,  setting 
off  credit  against  debt. 

N.  S.  B.  So  I  supposed.  But  you  are  all  mistaken. 
The  power  of  buying,  which  out  of  deference  to  you  I  will 
also  call  buying  on  credit,  which  a  bank  lends  to  A.,  is 
transferred  by  check  to  B.  and  from  B.  to  C,  and  frequently 
it  leads  to  the  withdrawal  of  money  from  the  reserve;  and 
inasmuch  as  we  both  agree  that  the  movement  of  the  extra 
gold  out  of  the  reserve  and  back  again  is  not  itself  the  active 
cause  of  cheaper  banking  accommodations,  it  follows  with  a 
certainty  equal  to  that  of  Mr.  Price's  demonstration,  that 
"  abundance  of  money  "  has  resulted  from  paying  up  bank 
loans  by  some  customers,  which  opened  the  way  for  more 
borrowing  by  others,  and  that  this  was  the  cause  which 
moved  the  gold  back  into  the  reserve.  But  what  caused 
this  cause  ?  It  was  sales  of  merchandise  by  those  who  were 
in  debt  to  the  banks.  Did  they  pay  with  money  borrowed 
out  of  bank?  Certainly  not,  because,  had  they  done  so,  they 
would  only  have  created  as  much  bank  debt  by  borrowing 
as  they  could  have  extinguished  by  buying.  It  is  a  sale  for 
cash,  then,  which  demonstrates  that  the  merchandise  sold  has 
gone  into  actual  consumption  at  home,  or  been  exchanged 
with  other  merchandise,  to  be  carried  abroad.  This  is  the 
paramount  cause,  which  has  at  one  and  the  same  time  taken 
merchandise  out  of  overstock,  where  it  was  held  by  the  aid 
of  bank  loans,  and  contracted,  not  the  quantity  or  volume  of 
money,  but  what  every  man  in  his  right  mind,  and  not 
deceived  by  a  fallacy  of  words  and  terms,  knows  lias  the 
same  effect,  —  the  power  of  putting  in  circulation,  by  the  use 
of  a  check,  money  which  stands  to  his  credit  in  bank.  To 
retire  such  a  credit  is  precisely  the  same  thing  as  to  retire 
a  like  sum  in  bank-notes.  Hence,  all  bank  loans  show  an 
equal  volume  of  merchandise  held  for  sale  ;  and  sales  for 
cash,  or,  in  other  words,  the  finding  of  consumers  for  all  this 
merchandise,  would,  while  paying  all  bank  loans  on  the  one 
hand,  not  only  abolish  all  bank  debt,  and  thus  produce  an 
enormous  contraction,  but  while  doing  so,  would,  on  the  other 


MONETARY   AND   INDUSTRIAL  FALLACIES.  77 

hand,  produce  an  equivalent  expansion,  by  an  importation 
of  metal,  unless  bank-notes  were  issued  as  bank  contraction 
proceeded. 

The  paramount  contracting  force,  therefore,  in  London,  in 
the  case  referred  to  by  Mv.  Price,  is  the  contraction  of  pro- 
duction   by  consumption.     The   exchanges    of    merchandise 
(commodities)  are  the  real  and  operative  ;  the   money  ex- 
changes tlie  auxiliary  and  subordinate  movement.     Bank  ex- 
pansion comes  from  production  gaining  u[)on  consumption, 
and  contraction  from    the  latter  gaining  upon    the  former. 
When  English  goods  are  sold  to  be  shipped  abroad  (and  to 
suppose  that  they  are  either  single  or  double-bartered  for 
American  or  other  foreign  goods  is  equally  a  fallacy),  the 
sale  produces  an  equal  bank  contraction,  and  where  American 
grain  and  provisions  are  imported,  the  discounting  of  the  bills 
of  exchange  drawn  against  these  in  the  United  States  pro- 
duces an  equal  bank  expansion  in  England.     Whatever  may 
be  the  volume  of  the  total  of  English  bank  expansion,  there- 
fore, it  comes   from  English  production  entirely,  and  it  is 
neither  increased  nor  diminished  by  the  exchange  of  English 
merchandise,  by  means,  not  of  barter  or  double  barter,  but  of 
the  two  auxiliary  and  conventional  money  exchanges :  first, 
of  English  goods  for  English  money  at  home ;  and  second, 
the  sale  of  American  produce  for  English  money,  which  is 
laid  out  in  English  goods.     Bank  expansion  is  thus,  so  far, 
through  the  exchanges,  both  real  and  auxiliary,  balanced  in 
England  by  bank  contraction.     But  London  is  the  great  in- 
ternational mart,  and  raw  material  and  colonial  produce  may 
be  purchased  and  held   there  by  the  aid  of  bank  loans  in 
advance  of  real  exchanges  for  it,  of    English  goods.     This 
has  the  same  effect  in  producing  English  bank  expansion  as 
a  like  amount  expended  on  English  labor.     Because  London 
is  such  a  mart,  English  bank  expansion,  which  is  the  total 
of  bank  debt  over  and  above  the  total  of  bank  reserve,  may 
be  resolved  for  the  most  part  into  two  elements ;  first,  the 
total  of  English  labor  which,  by  the  aid  of  bank  loans,  ap- 
pears in  the  shape  of  English  productions  which  remain  un- 
sold, and  the  profits  paid  by  the  present  holders  ;  second,  the 


78  MONETARY  AND   INDUSTRIAL  FALLACIES. 

amount  of  colonial  and  foreign  produce  held  in  England  by 
the  aid  of  English  bank  loans  in  advance  of  purchases  of 
English  goods  through  bills  drawn  against  such  produce. 
The  export  of  gold  arises  from  loans  to  make  purchases  of 
bills  or  produce  abroad  at  lower  prices  than  prevail  in  Lon- 
don by  reason  of  produce  held  out  of  market  by  the  aid  of 
bank  loans,  and  the  high  prices  caused  by  the  expansion  of 
the  circulation  of  money  in  the  reserve,  or,  in  other  words, 
bank  expansion.  The  import  of  gold  comes  from  reduced 
prices,  caused  by  London  sales  of  the  produce  for  cash.  The 
purchase  of  the  produce  causes  bank  expansion  to  the  exact 
extent  of  the  purchase ;  the  loans  which  withdraw  gold  from 
the  reserve  cause  an  equal  expansion.  The  former  expan- 
sion occurs  by  increasing  the  power  of  circulating  money 
as  compared  with  the  reserve ;  the  loan  which  takes  money 
out  of  the  reserve,  and  thus  causes  an  export  of  gold,  has 
precisely  the  same  effect.  In  other  words,  the  movement  of 
gold  out  of  the  reserve  and  back  into  it  through  one  set  of 
loans,  has  precisely  the  same  effect  as  when,  to  save  handling, 
no  gold  is  actually  paid  out  as  the  result  of  another  set  of 
loans,  because  it  suits  the  convenience  of  borrowers,  buyers 
and  sellers,  to  let  it  remain.  Hence,  as  my  friend  asserts,  the 
reserve  makes  all  payments  which  result  from  bank  loans, 
and  bank  expansion  is  only  the  result.  Bank  expansion 
comes  by  taking  from  reserve,  and  bank  contraction  from 
adding  to  it.  This  arises  from  the  conventional  character  of 
all  money ;  a  small  as  well  as  variable  ratio  of  reserve  being 
sufficient  to  make  actual  payments.  Because  of  this  conven- 
tional character,  the  important  question  is,  not  merely,  —  How 
much  money  is  there  in  the  reserve  ?  but,  What  is  the  pro- 
portion of  reserve  to  the  total  of  deposit  debt  due  by  the 
banks  to  depositors ;  and  what  is  the  longest  period  in  which 
this  proportion  varies  from  average  ? 

0.  P.  E,  This  is  something  entirely  new ;  in  short,  I 
may  say,  that  at  present  it  is  all  Greek  to  me,  as  the  saying 
is.     I  may  be  able,  after  some  reflection,  to  understand  it. 

C.  B.  C.  It  is  worse  than  Greek  to  me.  It  is  positively 
absurd.     Of  all  things  in  my  political  economy,  money  is 


MONETARY   AND   INDUSTRIAL   FALLACIES.  79 

the  simplest.  Even  S.  L.  understands  it  fully.  He  knows 
as  well  as  I  do,  that  everything  but  money  is  plenty.  Make 
money  as  plenty  in  proportion  as  all  other  things,  and  then 
you  will  have  true  harmony  of  production.  This  is  the 
quarter  where  proportion  is  at  fault,  and  not  in  banking  re- 
serve and  bank  debt.  To  a  man  who  has  studied  money  a 
long  time,  like  myself,  and  therefore  ought  to  know  some- 
thing about  it,  this  proportion  between  resen^e  and  debt  is  a 
mere  cobweb,  woven  to  conceal  some  banking  scheme.  No 
practical  man  will  give  it  the  slightest  attention,  and  even 
S.  L,  perceives  at  once  its  absurdity,  as  well  as  myself  and 
O.  P.  E.  It  is  designed  to  make  money  more  scarce  instead 
of  plenty ;  and,  therefore,  as  a  plain  practical  man  and  writer, 
I  oppose  it.  It  is  equally  opposed  to  the  ideas  of  O.  P.  E. 
and  his  friends,  in  respect  to  bank  credit  and  clearing. 
There  is  a  touch  of  irony  in  N.  S.  B.'s  remarks  upon  these 
subjects  which  affects  O.  P.  E.  as  well  as  myself. 

iV.  *S'.  B.  There  is  no  attempt  at  irony.  If  there  is  an 
appearance  of  it,  it  results  from  the  mere  statement  of  the 
different  theories.  There  is  irony  enough  for  me  in  C.  B. 
C.'s  statement  of  his  views  and  those  of  his  friends,  and  he 
certainly  states  them  more  clearly  and  strongly  than  I  ever 
heard  them  stated  before.  He  has  made,  on  the  whole,  an 
able  argument  also,  in  favor  of  convertible  bond-currency. 
The  real  difference  between  C.  B.  C.  and  O.  P.  E.  is,  that 
they  both  make  money  man's  master,  instead  of  his  servant. 
They  both  make  the  auxiliary  exchange  of  the  conventional 
commodity,  money,  paramount,  when  it  is  only  subordinate 
to  the  real  exchange  of  commodities  which  he  makes  in  order 
to  satisfy  his  artificial  as  well  as  natural  (absolute)  wants. 
He  made  money:  money  never  made  him.  The  exchanges, 
and  therefore  the  production,  which  are  necessaiy  to  supply 
all  his  wants,  relative  to  civilization,  as  well  as  absolute  and 
independent  of  civilization,  must  be  made  by  means  of  an 
auxiliary  exchange  which  money  furnishes.  Every  purchase 
is  a  sale,  and  every  sale  is  a  purchase.  He  invented  money, 
or,  in  other  words,  a  process  for  exchanging  those  things  which 
he  needs,  by  putting  money  in  the  place  of  one  of  the  com- 


80  MONETARY  AND   INDUSTRIAL  FALLACIES. 

modities  or  the  commodities  and  labor  to  be  exclianfjed.  To 
exchange  one  commodity  directly  for  another  is  barter.  To 
maintain  the  exchanges  he  required,  it  was  necessary  to  get 
rid  of  direct  by  substituting  for  it  indirect  barter.  This  he 
did  by  making  one  commodity  universally  receivable  in  ex- 
change for  all  other  commodities  and  labor.  This  gave  the 
former  a  conventional  value,  while  all  other  commodities 
have  a  real  value  growing  out  of  the  wants  to  be  sup- 
plied ;  and  the  demand  for  them  is  the  result  of  those  wants. 
Hence,  all  the  money  in  banking  reserve,  whether  it  con- 
sists virtually  of  gold,  as  in  England,  or  bank-notes  and  gold, 
as  in  the  United  States,  is  deposited  by  those  who  have  re- 
ceived the  conventional  commodity,  money,  for  real  com- 
modities or  for  labor.  If  loans  were  never  used  to  pay  for 
labor  either  directly  or  indirectly,  but  only  to  buy  commod- 
ities, deposit  loans  would  not  exist.  Deposits  over  and 
above  reserve  constitute  the  total  of  bank  loans,  and  this 
total  is  the  amount  which  has  been  paid  to  labor,  whose  ac- 
cumulated results  are  found  in  the  merchandise  produced  by 
the  aid  of  bank  loans,  plus  the  profits  of  the  capital  which 
has  emploj'ed  labor  to  produce  it.  Had  the  labor  not  been 
paid  its  wages  borrowed  by  the  aid  of  bank  loans,  the  credit 
profits  of  capital,  which  are  registered  in  deposits,  would  not 
have  existed  to  increase  the  total.  Labor's  results  thus  pro- 
duced by  the  aid  of  bank  loans  must  be  exchanged  for  the 
results  of  other  labor  not  produced  by  the  aid  of  bank  loans, 
before  deposit  debt  over  and  above  reserve  can  be  liquidated. 
The  latter  results  are  embraced  for  the  most  part  in  the 
absolute  necessaries  of  life,  which  are  annually  consumed. 
They  are  purchased,  it  is  true,  by  the  aid  of  bank  loans,  but 
not  until  they  are  produced,  and  the  annual  consumption 
enables  the  borrowers  to  pay.  The  exchange  of  these  prod- 
ucts for  the  others  continually  reduces  the  volume  of  bank 
debt.  It  is  the  constantly  and  slowly  increasing  surplus  of 
the  results  produced  by  bank  loans,  which  causes  bank  ex- 
pansion above  average :  the  actual  exchanges  increase  the 
reserve.  Hence  the  movements  out  of  the  reserve  consist  of 
money  withdrawn  by  producers  and  buyers  to  pay  labor,  and 


MO^'ETAKY  AND   INDUSTRIAL  FALLACIKS.  81 

to  buy  mercluuulise  intended  for  consumption  :  the  move- 
ments into  the  reserve  consist  of  the  same  money  returned 
by  sellers.  One  stream  must  always  very  nearly  balance 
the  other,  and  clearing  is  only  setting  off  one  current  against 
the  other  to  save  handling.  The  adverse  balance  comes  from 
the  vej-y  slight  but  constantly  increasing  excess  of  the  out- 
going over  the  incoming  stream.  This  excess  increases  reg- 
ularlv  during  all  the  years  of  bank  expansion,  and  makes  the 
adverse  balance  against  production,  which  is  constantly  and 
slowly  accumulating  in  wages  paid  to  labor  over  and  above 
sales  of  labor's  products,  and  profits  thereon  paid  capital  for 
its  share  in  the  result.  If  labor  never  used  its  surplus  earn- 
ings to  increase  the  glut,  and  capital  never  drew  its  check  to 
employ  these  profits  in  speculative  undertakings,  and  loans 
to  those  who  engage  in  them,  until  labor's  products  were 
sold  to  consumers,  the  result  might  be  only  a  commercial, 
banking,  and  industrial  crisis  on  a  moderate  scale,  without 
causing  so  much  partially  unproductive  investment  of  labor 
everywhere  in  the  improvement  of  cities  and  towns  and  in 
the  building  of  mills  and  of  railroads. 

The  important  movement,  then,  before  a  crisis,  is  that  of 
the  reserve,  in  the  slowly  progressive  diminution  of  its  total 
as  compared  with  bank  debt.  When  its  total  is  increasing, 
on  the  other  hand,  slowly  and  regularly,  as  compared  with 
bank  debt,  consumption  is  gaining  upon  production  ;  labor  is 
receiving  less  wages,  and  capital  less  profits  than  they  re- 
ceived while  the  expansion  of  overstock  and  bank  debt  was 
progressing.  Having  received  more  than  their  share  in  the 
economy  of  exchanges,  for  a  time,  they  must  now,  for  a  time, 
receive  less,  while  the  reserve,  which  mirrors  all  the  ex- 
changes, is  now  increasing  in  excess  of  average.  Production 
and  consumption  balanced,  are  reflected  in  the  reserve,  there- 
fore, by  an  even  ratio  of  reserve  to  bank  debt :  consumption 
then  maintains  the  reserve  at  average,  and  production  main- 
tains bank  debt  at  average.  The  premise  of  Mr.  Price  must 
therefore  be  amended,  by  stating  that  it  is  true  that  the 
money  coming  into  the  reserve  is  not  needed  to  supply  the 
loss  occasioned  by  the  slight  excess  of  the  outgoing  above 


82  MONETARY  AND    INDUSTRIAL   FALLACIES. 

the  incoming  stream,  und  might  therefore  be  locked  up  indefi- 
nitely ;  yet  its  movement  into  the  reserve  is  an  essential  part 
of  the  machinery  of  exchanges,  and  the  objective  point  of  per- 
fection is  to  maintain  that  stream  at  the  same  volume  with 
that  which  moves  from  the  reserve,  because  banks  deal  in 
their  reserve  and  not  in  their  own  debt :  their  debt  is  oyly  the 
registered  movement  of  their  reserve.  This  is  the  premise 
of  Mr.  Price  as  it  must  now  stand  amended  by  those  who 
maintain  that  the  movement  of  the  gold  back  into  reserve 
has  any  relation  whatever  to  bank  loans  or  to  bank  debt. 
It  is  not  needed  to-day  for  actual  use  in  the  way  of  being 
paid  out  to  the  depositors  of  to-day,  nor  will  it  be  needed 
to-morrow  to  pay  out  to  those  depositors  who  will  to-day 
or  to-morrow  become  such  by  reason  of  credits  placed  to 
their  account  through  loans  made  meantime  by  the  bank. 
"Whether  the  bank  is  a  member  of  a  clearing  house,  or 
whether  a  clearing  house  exists  or  not,  is  perfectly  immate- 
rial ;  the  gold  thus  returned  may  in  nine  cases  out  of  ten 
be  indefinitely  locked  up.  It  will  not  be  wanted  even  in  a 
banking  panic,  for  it  can  then  supply  but  a  small  portion  of 
what  would  be  needed  to  meet  all  calls  in  metal.  Until  a 
banking  crisis  comes,  —  and  whether  with  or  without  panic  is 
immaterial,  —  a  very  small  part  of  the  reserve  will  supply 
the  outgoing  current,  because  its  excess  over  the  incoming 
one  is  so  small,  that  overstock  will  cause  a  crisis  and  there- 
fore change  the  excess  in  favor  of  the  incoming  stream,  long 
before  the  reserve  can  be  exhausted.  This  is  well  known  to 
all  bankers,  whether  they  understand  its  import  or  not.  In 
a  bajik  of  deposit  containing  all  the  deposits  of  London, 
probably  nine  tenths  or  more  of  the  total  deposited  might 
be  locked  up,  and  one  tenth  would  be  a  reserve  sufficient  to 
meet  all  checks.  Less  than  five  per  cent,  of  the  total,  it  may 
be,  would  be  the  daily  volume  of  the  outgoing  as  well  as  the 
incoming  stream,  making  the  total  in  transit  less  than  ten 
per  cent. :  perhaps  five  per  cent,  would  cover  the  total  volume 
of  the  two  streams.  If  the  bank  be  converted  into  a  deposit 
and  discount  bank,  and  uses  ninety  per  cent,  of  the  total  in 
loans,  the  principle  is  the  same.     The  eyes  of  O.  P.  E.  and 


MONETARY  AND  INDUSTRIAL   FALLACIES.  83 

C.  B.  C.  and  their  friends,  as  well  as  of  people  generally,  are 
blinded,  by  confounding  the  auxiliary  with  the  principal  ex- 
change. The  question  is  not,  How  much  money  will  supply 
all  the  commercial  exchanges  of  the  community,  whether 
there  be  or  be  not  banks,  bank  loans,  checks,  and  clearings? 
but.  How  much  money  will  the  real  exchanges  naturally  keep 
in  the  reserve  ?  It  is  not  the  exchanges  of  money  which 
move  real  commodities,  but  the  exchanges  of  real  commod- 
ities which  control  the  movements  of  the  conventional  com- 
modity called  money,  as  an  auxiliary. 

(7.  B.  C.  I  begin  to  catch  a  glimpse  of  what  you  want  to 
show.  You  want  to  show  that  owing  to  the  fact  that  money 
is  not  a  real  commodity,  there  is  danger  of  its  being  used  as 
a  conventional  one,  in  exchange  for  labor  to  produce  some 
real  commodities,  oftener  than  it  is  used  in  exchange  for 
labor  to  produce  others,  or  to  pay  labor  after  it  has  produced 
them.  You  think  the  banks  have  done  all  in  their  power  in 
the  way  of  lending,  and  that  they  are  still  able  and  willing 
to  lend,  if  they  can  find  people  who  are  able  and  willing  to 
borrow ;  but  the  I'esults  of  labor  and  capital  have  been  piled 
up  so  high  already,  by  the  aid  of  bank  loans,  that  time  is 
needed  to  reduce  the  total  by  cash  sales  and  consumption  ; 
that  capital  and  laboi*  must  therefore  moderate  their  move- 
ment to  enable  consumers  and  cash  buyers  to  catch  up. 

0.  P.  E.  The  question  is  one  of  international  importance, 
I  admit.  It  applies,  according  to  N.  S.  B.,  more  particularly 
to  some  nations  than  to  others.  But  if  N.  S.  B.  is  right,  old 
political  economy  must  be  set  aside,  or  constructed  anew, 
"with  so  many  modifications,  that  its  friends  will  hardly  know 
it.  In  order  to  establish  his  theories  about  harmony  and 
discord  in  production,  and  the  nature  of  money  and  bank- 
ing, it  will  be  necessary  to  get  rid  of  the  theories  of  myself 
and  friends.  There  is  not  a  graduate  of  a  college  or  high 
school,  who  has  not  been  taught  that  money  is  a  commodity, 
giving  rise  to  double  barter  as  a  development  from  and  an 
improvement  upon  the  single  barter  of  savtiges;  not  one  who 
has  not  been  taught  that  banks  deal  in  their  own  debt  and 
credit,  just  as  merchants  ckal  in  mercantile  debt  and  credit; 


84  MONETARY  AND   INDUSTRL\L  FALLACIES. 

not  one  who  has  not  been  taught  that  checks,  drafts,  and 
bills  of  exchange,  and  sometimes  promissory  notes,  constitute 
with  mercantile  and  bank  credits  and  debts,  "  the  great  vol- 
ume of  credits,"  which  moves  of  itself, — I  cannot  explain 
how,  —  to  settle  the  great  transactions  of  commerce,  while  the 
small  ones  are  managed  by  bank-notes  and  specie.  There  is 
not  an  under-graduate  who  has  studied  political  economy  or 
heard  lectures  upon  it;  not  a  single  professor,  and  not  one 
banker  who  has  any  opinion  at  all,  who  does  not  believe 
what  may  be  called  the  English  credit  theory,  —  which  all 
our  books  teach,  —  that  there  is  perfect  harmony,  where  he 
says  there  is  discord,  in  production ;  not  one  who  has  not  been 
either  taught,  or,  through  clearing,  converted  to  the  theory 
that  the  great  transactions  of  commerce,  being  settled  by 
credits,  have  no  relation  to  the  reserve  whatever ;  that  de- 
posits arise  from  sales,  and  banking  and  commercial  and  in- 
dustrial crises,  from  speculation.  Most  of  them  believe  that 
gold  is  a  standard,  and  that  the  premium  on  gold  is  the  meas- 
ure of  the  depreciation  of  an  inconvertible  currency,  after  the 
opinion  of  Mill.  N.  S.  B.  and  his  friend  have  a  hard  task 
before  them,  to  make  all  these  people  believe  that  there  is 
any  such  thing  as  overproduction  ;  and  if  they  succeed  in 
that,  they  will  have  a  still  harder  one  to  make  them  believe 
that  a  duly  proportioned  metallic  reserve  will  help  to  main- 
tain harmony,  whatever  Adam  Smith  may  have  thought  about 
the  necessity  of  keeping  bank-notes  in  due  proportion  to  gold 
and  silver.  That,  they  will  say,  is  a  very  different  thing 
from  debt  by  book.  With  the  former  in  use  men  buy  for 
cash  ;  with  the  latter  they  buy  on  credit. 

It  will  be  harder  to  get  rid  of  our  old  science,  if  false,  than 
to  establish  a  new  one,  even  if  true. 

Still,  I  think,  in  these  times  all  theories  ought  to  be  ex- 
amined, and  I  am  willing,  if  our  names  are  carefully  kept 
out  of  N.  S.  B.'s  report,  to  discuss  briefly  at  another  meeting 
the  differences  betw^een  the  old  theories  and  the  new  ones ; 
especially  as  N.  S.  B.  and  his  friend  say  that  the  principles 
of  the  science  are  modified  in  their  adaptation  to  different 
countries.     This  is  something  I  never  heard  of.     I  propose. 


MONETARY   AND   INDUSTRIAL   FALLACIES.  80 

therefore,  that  we  now  adjourn  and  meet  a  week  hence  at  the 
same  hour,  to  discuss  this  subject.  As  none  object,  we  will 
adjourn,  and  the  next  subject  shall  be  called  — 

THE  rOLlTlCAL  ECONOMY  OF  THE  EXCHANGES  OF  MER- 
CHANDISE THROUGH  THE  AID  OF  THE  AUXILIARY 
CALLED  MONEY,  AS  IT  EXISTS  AND  AS  IT  OUGHT  TO 
BE  MODIFIED  IN  FOUR  GREAT  PRODUCING  NATIONS  OF 
THE  WORLD,  —  ENGLAND,  FRANCE,  GERMANY,  AND  THE 
UNITED   STATES. 

0.  P.  E.  We  are  all  here  to  discuss  the  subject  agreed 
upon  at  our  adjournment.  Upon  reflection  since  that  time, 
it  seems  to  me  that  N.  S.  B.  is  right  in  taking  France  as  the 
country  where  prices  are  steadiest  and  where  the  least  specu- 
lation is  to  be  found.  Every  man  who  has  money  in  France, 
believes  that  he  has  a  commodity,  quite  the  same  as  if  he  had 
the  amount  in  bullion  or  plate ;  and  N.  S.  B.  and  his  friend 
will  never  convince  him  to  the  contrary.  But  it  is  painful 
to  an  economist  to  think  of  the  total  absence  of  economy  in 
paying  for  and  losing  the  interest  on  so  much  costly  metal, 
when  the  introduction  of  banks,  credits,  and  clearing,  would 
relieve  the  banks  of  more  than  half  their  useless  load,  by 
putting  it  at  interest  or  investing  it  in  new  business. 

Is  not  this  matter  of  steady  prices  and  steady  produc- 
tion N.  S.  B.  talked  about,  a  delusion,  after  all  ?  If  bank 
and  mercantile  credits,  checks,  bills  of  exchange,  drafts  and 
notes,  constituting  the  whole  volume  of  credits,  make  gold, 
except  in  small  amounts,  unnecessary,  is  it  not  barbarous 
to  hoard  it  in  such  quantities  ?  Does  it  not  carry  us  back 
to  the  Middle  Ages,  and  even  beyond  them  ?  Still,  if  we 
assume  that  such  hoarding  is  attended  with  steadier  prices 
than  prevail  in  England  and  the  United  States,  as  N.  S.  B. 
and  his  friend  say,  it  must  be  because  gold  and  silver  are, 
as  money,  commodities,  as  we  know  a  ton  of  copper,  a  ton  of 
iron,  and  a  horse,  to  be.  It  must  be  double  barter  that  gives 
the  superior  steadiness,  if  that  supposed  steadiness  is  not,  as 
I  assert  it  to  be,  in  point  of  fact,  a  delusion.  If  metallic  com- 
modity and  double  barter  do  not  produce  this  steadiness, 


86  MONETARY  AND   INDUSTRIAL   FALLACIES. 

which,  for  the  present  we  assume,  as  we  are  now,  agreeably 
to  my  proposal,  considering  in  the  first  place  the  economy 
adapted  to  France,  what  can  ?  N.  S.  B.  and  his  friend  pro- 
pose the  new  theory  that  money  is  not  in  any  form  a  com- 
modity. What  reasons  can  they  give,  then,  for  the  assumed 
steadiness  of  metal  ?  For  the  last  week  I  have  been  run- 
ning over  half  a  dozen  books,  —  three  by  our  American,  and 
as  many  by  English  professors,  —  and  comparing  the  text  in 
each  with  that  of  my  own,  which,  without  vanity,  I  may  say, 
is  used  as  a  text-book  in  the  United  States,  upon  the  allied 
subjects  of  money  and  credit.  All  of  the  writers,  confessing 
that  bank-notes  are  only  a  form  of  credit,  admit  that  in 
point  of  science  they  ought  not  to  be  called  money,  but  only 
a  form  of  credit.  They  only  call  them  money  in  conformity 
with  popular  usage.  I,  myself,  repeat  the  assertion,  with  a 
stronger  emphasis  on  that  portion  of  it  which  affirms  the 
notes  to  be  only  a  form  of  credit.  The  borrower  delivers  to 
the  bank  his  form  of  credit  in  the  shape  of  a  bill  of  exchange, 
or  note  promising  to  pay  a  commodity,  that  is  to  say,  money ; 
the  bank,  deducting  from  that  amount  a  certain  sum  by  way 
of  jDremium  on  difference  in  the  exchange  of  credits,  gives  the 
holder  of  the  first  form  of  credit  its  o^vn  form,  in  the  shape 
of  bank-notes.  These  are  both  forms  of  credit,  but  that  of 
the  bank  is  the  best  for  use.  Here  lies  the  only  difference 
between  them.  The  last  is  called  sometimes  the  most  po- 
tent form  of  credit,  but  that  is  merely  because  it  is  most 
used.  Thus  A.  borrows  of  a  Boston  bank  ten  thousand  dol- 
lars in  bank-notes,  less  discount.  Assuming  "  specie  pay- 
ments "  to  have  arrived,  he  makes  his  note  with  an  indorser, 
at  ninety  days.  He  promises  to  pay  the  bank  ten  thou- 
sand dollars  in  gold  coin.  Every  one  of  these  dollars  he 
promises  to  deliver  is  a  commodity,  like  a  bushel  of  wheat, 
a  cow,  a  horse,  or  a  ton  of  pig  iron.  The  bank  gives  him  in 
exchange,  after  deducting  premium  in  favor  of  its  own  credit 
in  the  shape  of  discount,  ninety-eight  hundred  and  forty-five 
dollars,  in  notes  of  different  amounts.  These  notes,  when 
paid  out  to  various  persons  in  exchange  for  labor,  for  wheat, 
bread,  flour,  provisions,  iron,  and   horses,  are   contracts  to 


MONETAKY   AND   INDUSTRIAL   FALLACIES.  87 

deliver  a  commodity  called  money,  on  demand,  to  those  who 
furnish  the  other  commodities  named,  or  any  other  that  may 
be  wanted,  in  exchange  for  the  notes.  Hence  it  is  only 
single  barter,  after  all,  where  any  form  of  credit  is  used. 
Where  gold  itself  is  used,  it  is  a  case,  however,  of  double 
barter.  This  every  one  has  to  go  through  before  he  can  get 
wliat  he  wants,  if  he  uses  gold  :  and  double  barter  gives 
gold  its  steadiness  as  money.  I  have  furnished  you  a  rigor- 
ously exact  statement  of  our  views.  As  we  are  now  in 
France,  take  notice  that  we  are  in  the  land  of  double  barter, 
even  in  large  mercantile  transactions.  Credit  is  used  un- 
doubtedly, but  to  a  comparatively  small  extent.  But  I  must 
confess  that  double  barter  seems  barbarous  to  me  except  in 
the  smallest  retail  transactions.  All  that  France  saves  by 
using  double  barter  so  extensively  is  in  regard  to  speculation. 

iV.  S.  B.  Did  the  people  use  the  system  of  single  or 
double  barter  when  they  retired  their  commodity  and  used 
bank  credit  altogether  in  France? 

0.  P.  E.  That  very  question  arose  in  my  mind,  but  I 
forgot  to  examine  it.  I  will  do  so  in  the  next  edition  of  my 
book. 

N.  S.  B.  Your  definition  is  very  full.  You  all  say  that 
the  exchanges  between  different  countries  are  made  by  single 
barter.  Of  course,  therefore,  France  makes  hers  in  like 
manner,  notwithstanding  her  stores  of  metal. 

0.  P.  E.     Undoubtedly  it  is  all  barter. 

N.  S.  B.  Suppose  the  wheat  crop  of  France  to  be  a  lit- 
tle short,  and  while  the  French  are  buying  in  New  York, 
American  dealers  ship  wheat  to  Havre,  and  draw  bills  of  ex- 
change against  the  cargoes,  directing  the  consignees  to  bai'ter 
the  wheat  for  velvets  and  silks,  would  it  not  take  them  by 
surprise  ? 

0.  P.  E.  Of  course  it  would  :  that  is  not  the  kind  of 
barter  we  mean.  We  are  logical  and  you  are  not.  We 
mean  that  the  merchandise  exported  is  equal  to  that  im- 
ported, except  balances:  the  mercantile  theory  about  always 
having  the  balance  of  trade  is  absurd,  and  one  nation  merely 
exchanges  its  products  with  another. 


88  MONETARY   AND   INDUSTRIAL  FALLACIES. 

iV!  >S'.  B.  Is  not  that  precisely  what  takes  place  at  home? 
Have  I  not,  over  and  over  again,  said  that  the  principal  ex- 
changee of  real  commodities  controls  the  subordinate  one  of 
money  ?  But  all  exchanges  are  alike.  If  it  is  barter  inter- 
nationally, it  is  nationall}'.  In  point  of  fact,  it  is  barter  in 
neither  case.  There  is  in  all  cases  a  conventional  commodity 
on  one  side,  and  a  real  one  on  the  other.  All  trade  is  alike, 
because  it  is  a  whole  consisting  of  many  parts.  Interna- 
tional and  national,  wholesale  and  retail  trade,  constitute  the 
respective  parts.  Money  in  all  its  forms  is  but  one  process  : 
steadiness  in  the  exchange  is  the  thing  to  be  desired,  and 
with  a  currency  like  that  of  France  is  certain  of  attainment, 
because  loans  cannot  be  made  fast  enough  to  create  exces- 
sive overstock  in  any  part  of  the  productive  field.  As  to 
your  assertion  that  barter  takes  place  between  nations  be- 
cause onl}'^  balances  are  paid  in  metal,  would  you  expect  a 
farmer,  when  taking  a  load  of  wheat  to  market,  or  a  mer- 
chant in  shipping  it,  to  carry  with  him,  or  to  ship  the  price 
of  it  in  gold  ?  He  expects  to  find  the  money  in  the  market 
where  he  sells.  Such  loose  talk  about  barter  would  be  ludi- 
crous if  it  had  not  really  taken  the  name  of  science. 

0.  P.  E.  You  use  great  plainness  of  speech  ;  but  it 
is  right,  inasmuch  as  it  is  not  personal.  You  will  have  a 
fine  time  of  it  if  you  undertake  to  support  the  mercantile 
theory. 

N.  S.  B.  That  is  the  very  thing  my  friend  and  I  are 
opposing.  You  oppose  what  we  call  some  of  the  logical 
inferences  from  it  ;  we  oppose  the  theory  itself  as  matter  of 
science,  deeming  its  effect  really  beneficial  in  France,  but 
pernicious  when  in  such  countries  as  England  and  the  United 
States  it  prevents  you  from  perceiving  the  importance  of 
taking  France  as  a  model  of  steady  prices,  and  endeavoring 
with  the  means  at  hand  to  approach  as  nearly  as  possible  to 
them. 

C.  B.  C.  What  is  the  true  cause  of  French  financial 
prosperity  ?  I  and  my  friends  have  always  called  it  the 
large  volume  of  money,  which  gives  her  such  an  enormous 
per  capita  circulation  ?     I  do  not  believe  there  is  any  other 


MONETARY   AND   INDUSTRIAL  FALLACIES.  89 

good  reason,  but  if  there  is  any  other,  I  should  be  glad  to 
hear  it.  I  suppose  that  I  believe  in  the  commodity  and 
double-barter  theory,  but  I  believe  any  kind  of  money  is 
good  if  there  is  enough  of  it. 

N.  jS.  B.  My  friend  wants  to  put  the  science  of  produc- 
tion and  exchange  upon  a  solid  foundation,  by  investigating 
causes  instead  of  effects.  He  makes  man  the  actor  instead 
of  the  thing  acted  upon,  and  hence  he  makes  those  things 
which  supply  his  necessities,  natural  and  acquired,  para- 
mount to  the  instruments,  by  the  aid  of  which  they  are  sup- 
plied. He  regards  national  prosperity  as  a  relative  term, 
and  wealth  as  a  condition.  National  inequalities  in  the 
capacity  and  circumstances  of  the  actors  are  the  principal 
causes  which  make  their  several  conditions  unequal ;  but  this 
leads  indirectly  to  progress  on  the  part  of  all.  The  exagger- 
ation of  this  inequality  through  our  bad  monetary  system  has 
of  late  developed  a  madly  destructive  tendency,  new  to  this 
country. 

Were  money  a  commodity,  prices  in  France  would  be  as 
steady  as  they  now  are,  but  the  people  would  be  in  a  sav- 
age state.  Were  money  a  commodity,  and  the  people,  by 
supposition,  as  civilized  as  now,  a  Frenchman  might  send  his 
silver  five-franc  pieces  to  London  and  barter  them  as  bullion 
for  English  goods,  without  the  loss  of  a  single  centime,  in- 
stead of  exchanging  them  first  at  a  loss  of  fifteen  per  cent, 
for  a  much  smaller  quantity  of  English  coined  silver.  Silver 
has  fallen  in  London  precisely  as  much  as  gold  has  risen,  and 
therefore  if  metallic  money  is  a  commodity,  he  ought,  in 
making  his  purchases,  if  the  English  are  willing  to  take  his 
five  francs  as  money  and  commodity  at  the  same  time,  to 
lose  only  seven  and  one  half  per  cent.,  as  compared  with 
prices  when  one  pound  of  gold  was  worth  fifteen  and  a  half 
of  silver.  In  point  of  fact,  however,  he  could  not  use  his 
francs  as  money  at  all,  and  if  he  had  a  large  purchase  to 
make,  it  would  cost  him  fifteen  per  cent,  to  convert  his  silver 
into  English  silver  or  gold  money,  and  then  he  would  find 
prices  relatively,  —  mark,  I  say  relatively,  —  unchanged. 
The  stopping  of  free  coinage,  called  demonetization,  for  want 


90  I\IONETARY  AND  INDUSTRIAL  F^O^LACIES. 

of  any  better  word,  has  had  no  effect  whatever  on  the  price 
of  gold  or  silver  m  exchange  for  all  commodities  other  than 
themselves.  It  has  seriously  affected  the  barter  relation 
between  the  metals,  however,  and  that  is  the  cause  of  the 
Frenchman's  loss.  It  is  precisely  the  same  in  his  own  mar- 
ket at  home.  The  barter  rates  of  gold  and  silver  are  the 
same  there  as  in  London.  Although  the  barter  rates  be- 
tween silver  and  gold  have  changed  to  the  extent  of  fifteen 
per  cent,  in  all  against  silver  by  the  rise  of  gold  seven  and  one 
half  per  cent,  above  the  old  rate  of  1  to  15^,  and  the  fall  of 
silver  seven  and  a  half  per  cent,  below  it,  it  is  in  the  distant 
future  that,  as  money,  gold  will  gain  or  silver  lose  as  com- 
pared with  other  commodities  ;  and  it  is  quite  possible  that 
neither  of  them  will  gain  or  lose  one  per  cent.  If  all  French- 
men who  keep  their  own  gold  and  silver  were  required  to 
weigh  it  before  receiving  or  paying,  the  government  giv- 
ing up  coinage  altogether,  the  principle  would  be  the  same. 
Gold  and  silver  pay  as  units  precisely  like  bank-notes :  the 
essential  difference  is  in  the  limitation  of  possible  numbers. 
This  is  the  cause  of  the  difference  between  the  relative 
values  of  gold  and  silver  bullion  reckoned  in  each  other  as 
material  to  make  the  money  unit,  and  the  value  of  either 
metal  in  the  shape  of  units  of  metal  paid  out  in  exchange 
for  other  commodities,  which  I  have  just  explained  to  you. 
Exceptional  reasons,  however,  such  as  I  have  given,  aside, 
the  metal  in  a  coin  is  always  worth  in  market,  to  sell  as 
bullion,  an  equal  weight  of  uncoined  bullion,  because  the 
coin  cannot  as  bullion  be  more  or  less  than  an  equal  weight 
of  bullion.  On  the  other  hand,  the  bullion  is  worth  at  least 
as  much  as  the  coin,  less  cost  of  coining,  or,  in  case  of  abso- 
lutely free  coinage,  a  small  amount  of  interest.  The  reason 
why  the  barter  rates  between  gold  and  silver  have  changed, 
lies  chiefly  in  the  quantity  of  metal  formerly  in  the  shape 
of  silver  coin  now  thrown  upon  the  market,  the  falling  off 
of  the  demand  for  coinage  through  the  demonetizations,  and 
the  probabilities  of  the  future  as  estimated  by  bullion  deal- 
ers, because,  independently  of  these  considerations,  the  dif- 
ference between  the  ratios  of  silver  product  to  total  silver 


MONETARY  AND   INDUSTRIAL   FALLACIES.  91 

mass,  and  gokl  product  to  gold  mass,  for  five  years  past 
(the  true  ratios  of  comparison  upon  the  unit  theory),  is 
less  than  four  per  cent.,  and  this  difference  would  have  been 
bahuiLcd  by  coining  and  manufacturing  more  silver  than 
gold.  Low  prices  in  Europe  have  not  arisen  from  any  rise 
in  gold  as  money,  but  the  falling  off  in  production,  and, 
consequently,  in  the  circulation  of  money.  The  reason  gen- 
erally stated  why  gold  cannot  have  risen,  nor  silver  fallen, 
as  money,  is,  that  prices,  as  reckoned  in  one  or  the  other, 
are  determined  by  the  total  number  of  units  in  existence,  the 
total  economy  of  metal  through  the  machinery  of  banking, 
by  the  use  of  bank  debt,  whether  by  book  or  note,  and  the 
changes  in  the  circulation  of  money,  caused  by  expansion 
and  contraction  of  production.  This  economy  makes,  in 
point  of  efficiency,  an  enormous  addition  to  each  total  of 
metallic  units  paid  out,  and  this  efficiency  is  wholly  misun- 
derstood by  O.  P.  E.  and  his  friends,  because  they  either  do 
not  assume  in  their  investigations,  or,  assuming,  do  not  carry 
out  to  its  logical  results,  the  conventional  character  of  all 
forms  of  money.  They  convert  this  efficiency,  through  econ- 
omy of  money  in  banking  reserve,  into  a  chaos  of  "credits." 
They  confound  bills  of  exchange  and  checks  with  the  total  of 
deposits  which  limits  them,  and  make  bank  credit  something 
that  has  an  existence  independently  of  any  reserve.  The 
rise  of  gold  and  fall  of  silver  have  not  changed  the  purchas- 
ing power  of  either  metal  as  money,  because,  assuming  the 
existence  of  five  thousand  millions  of  dollars  of  gold  and  a 
like  sum  of  silver  money,  and  assuming  gold  to  have  risen  on 
the  average  seven  and  one  half  per  cent.,  and  silver  to  have 
fallen  seven  and  one  half  per  cent,  in  relative  barter  rates, 
the  first  condition  essential  to  raise  the  purchasing  power  of 
gold  seven  and  one  half  per  cent,  is  to  add  by  coinage  three 
hundred  and  seventy-five  millions  to  the  total  of  silver, 
and  retire  into  bullion  and  out  of  coinage  a  like  sum  in  gold; 
to  coin  seven  hundred  and  fifty  millions  of  silver,  without 
retiring  any  gold,  or  retire  seven  hundred  and  fifty  millions 
of  gold,  without  coining  any  more  silver.  One  of  these 
three  alternatives  is  needed  to  furnish  the  conditions  nee- 


92  MONETARY   AND   INDUSTRIAL  FALLACIES. 

essary  to  change  the  present  relations  between  the  purchas- 
ing power  of  gold  and  silver  to  the  extent  indicated ;  and 
if  we  allow  fifty  per  cent,  for  increased  efficiency  through 
economy,  then,  instead  of  seven  hundred  and  fifty,  we  shall 
require  eleven  hundred  and  twenty-five  millions.  The  total 
production  of  either  metal,  for  years  together,  is  a  small 
matter  compared  with  the  total  accumulation.  If  all  com- 
modities were  as  indestructible  as  gold  and  silver,  and  were 
only  needed  to  make  exchanges,  the  mass  of  each  would 
be  continually  accumulating,  as  silver  and  gold  have  done, 
and  the  annual  production,  whether  small  or  large,  for  years 
together,  would  not  materially  affect  exchangeable  values. 
Because  used  only  for  exchanging  and  not  for  consuming, 
the  relation  between  different  commodities  would  then  be 
that  of  numbers  of  units  which  the  total  mass  of  any  com- 
modity could  furnish  by  weight  or  measure,  as  compared 
with  another ;  and  values  of  commodities  reckoned  in  each 
other  would  rule  accordingly.  This  is  precisely  the  barter 
relation  of  silver  and  gold  as  material  to  furnish  units  of 
money  at  the  world's  chief  metal  mart  in  London,  and  every- 
where else.  It  is  the  vast  accumulation  of  metallic  units  of 
either  metal  which  keeps  prices  so  steady  when  reckoned  in 
one  or  the  other.  The  ratio  of  annual  increment  diminishes 
as  each  mass  is  continually  growing  larger.  Such  is  also  the 
case  with  the  world's  commerce :  the  annual  increment  is 
small  compared  with  the  existing  total.  This  relation  is 
one  that  is  involved  in  the  question  of  the  remonetization  of 
silver,  when  that  question  comes  up  in  due  time.  But  in 
order  to  make  the  purchasing  power  of  the  units  of  either 
metal  steady,  they  must  be  allowed  to  remain  where  that 
commerce,  whose  increase  has  been  in  such  wonderful  har- 
mony with  their  own,  has  left  them.  This  is  substantially 
the  case  in  France,  and  if  so,  when  we  come  to  England, 
it  will  necessarily  follow,  that  to  maintain  like  harmony  as 
near  as  we  can,  we  must  abandon  the  idea  that  gold  and 
silver  coins  are  ordinary  commodities ;  and  because  we  have 
seen  that  economy  counts  for  a  like  amount  in  metal,  we 
must  fix  that  economy  as  nearly  as  possible  at  a  definite 


MONETARY   AND   INDUSTRIAL   FALLACTf:.S.  93 

figure  within  short  periods.  In  France  the  varititions  in  the 
total  of  money  are  slow  and  regular ;  the  production  and 
consumption,  and  the  social  habits  and  economy  of  the  peo- 
ple, are  also  regular.  There  is  steadiness  of  production  and 
of  prices.  There  would  probably  be  less  steadiness  with 
such  a  currency,  if  used  by  either  iMiglishmen  or  Amei-icans, 
but  nevertheless  there  could  be  no  banking,  and  therefore  no 
commercial  and  industrial  crises,  as  we  know  them. 

0.  P.  E.  Prices  certainly  vary  in  France  as  everywhere 
else.  A  heavy  crop  of  wheat  brings  low  prices,  and  a  light 
cro})  high  prices  of  that  grain. 

N.  S.  B.  Exactly  so  ;  and  you  have  thus  furnished  the 
best  possible  illustration  of  the  great  difference  between 
units  of  gold  and  silver  in  their  character  of  money,  and 
unit  bushels  of  wheat.  Wheat  is,  on  the  average,  consumed 
mostly  within  one  year  after  it  is  produced.  Hence  annual 
variations  in  crops  make  quick  changes  in  prices^  while  upon 
the  long  average  prices  are  steady.  Wheat,  therefore,  would 
be  unfit  to  furnish  units  of  money,  independently  of  its  bulk. 
Gold  and  silver  are  the  steadiest  of  all  things  in  the  world, 
if  not  banked.  In  bank,  they  are  as  unsteady  as  the  units 
of  paper  money,  because  the  world  of  science  and  the  prac- 
tical mercantile  world  have  not  as  yet  learned  Avhat  money 
is  ;  and  not  only  so,  but  they  still  insist  that  to  one  half  the 
commerce  of  the  world  (wholesale)  the  reserve  bears  no  rela- 
tion at  all,  while  it  does  bear  a  relation  to  the  other  half 
(retail).  This  is  like  separating  a  steam  engine  into  two 
parts,  with  the  idea  that  they  will  work  better  when  sepa- 
rated than  when  united.  This  is  cutting  commerce  (which 
is  a  whole  consisting  of  two  parts)  in  two  upon  the  suppo- 
sition that  each  part  will  work  by  itself,  and  at  the  same 
time  with  the  other,  although  separated  from  it. 

0.  p.  E.    You  would  not  introduce  banks  into  France  then  ? 

N.  S.  B.  The  people  have  settled  that  question  :  if  they 
want  them  they  will  have  them.  At  present  they  are  better 
without  them  until  this  question  of  banking  reserves  is  set- 
tled, as  it  must  be. 

0.  P.  E.  What  do  you  say  to  teaching  the  doctrine  of 
the  impossibility  of  overproduction  in  France? 


94  MONETARY  AND   INDUSTRIAL  FALLACIES. 

iV.  S.  B.  It  is  false,  but  comparatively  harmless  there,  be- 
cause the  natural  tendencies  —  the  action  and  reaction,  the 
loss  within  ver}"  short  periods,  which  would  be  demonstrated 
by  it,  could  production  and  commerce  be  maintained  at  its 
present  volume  Avithout  the  auxiliary  exchange  of  money  — 
are  not  materially  changed  by  their  simple  monetary  system. 

0.  p.  E.  What  do  you  say  to  teaching,  any  longer,  in 
France,  our  old  mercantile  theory  of  money  as  an  ordinary 
commodity,  having  an  end  in  itself  like  a  cow  or  a  horse  ? 

N.  S.  B.  It  is  false,  but  harmless ;  and  not  only  harmless, 
but  it  tends  to  thrift.  If  all  currencies  were  exactly  like 
that  of  France,  the  mercantile  theory  of  money  as  a  valu- 
able commodity  intrinsically  ;  an  object  in  itself,  man  being 
its  subject ;  and  the  theory  of  perfect  harmony  in  produc- 
tion as  expounded  by  that  great  scientist,  M.  J.  B.  Say, 
would  be,  in  a  limited  and  relative  sense,  true. 

0.  S.  B.  I  am  a  listener,  desirous  of  learning.  France 
has  been  pretty  well  surveyed  ;  let  us  leave  for  Germany. 

iV.  S.  B.  Germany  has  furnished  of  late  a  practical  dem- 
onstration of  the  truth  of  what  has  been  said.  The  con- 
ditions of  national  prosperity  are  not  merely  large  results 
in  gross,  but  harmonious  results.  Germany  has  produced 
largely,  and  has  fed  all  classes  of  producers.  To  use  C.  B. 
C.'s  expression,  her  granaries  have  been  bursting  all  the 
time,  as  he  says  those  of  the  United  States  are  now.  Im- 
provements in  agriculture  in  the  way  of  increased  product  as 
well  as  economy  of  hand  labor,  have  been  made,  but  these, 
instead  of  tending  to  harmony  of  production,  tend  the  other 
way.  The  French  indemnity  and  the  multiplication  of  banks 
have  deranged  both  production  and  prices,  and  introduced 
Germany  to  an  acquaintance  with  national  debt. 

C.  B.  C.  What,  then,  is  the  kind  of  political  economy  for 
Germany  according  to  your  new  system  ? 

N.  S.  B.  Germany  ought  to  learn,  if  possible,  the  con- 
ventional character  of  money  and  the  fact  that  harmony  of 
production  is  not  absolutely,  but  only  relatively  true  ;  and 
that  its  relative  truth  is  the  cause  of  the  crisis  under  which 
she  is  suffering :  the  crisis  is  itself  the  process  of  rectifica- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  95 

tion.  To  restore  equilibrium  while  still  retaining  all  the 
new  productive  ability  she  may  have  acquired,  she  needs  to 
learn  the  lesson  that  the  natural  tendency  to  equilibrium  by 
mutual  action  and  reaction,  between  the  limited  production  of 
absolute  and  the  comparatively  unlimited  production  of  rela- 
tive necessaries,  is  endangered  by  the  use  of  the  indispensable 
auxiliary  exchange  of  money.  A  metallic  currency  unbanked, 
is  the  most  perfect,  because  its  units  are  equally  distributed 
with  those  of  commodities,  and  in  order  to  approximate  this 
distribution,  which  she  has  lost  through  the  introduction  of 
so  many  banks,  she  must  make  metallic  money  a  definite  part 
of  her  currency,  both  in  volume  and  circulation. 

0.  P.  E.  I  suppose  you  would  put  Great  Britain  and  the 
United  States  together.  The  economists  of  both  nations  are 
perfectly  agreed  about  commodity,  double  barter,  credits, 
and  reserve.  They  only  differ,  I  think,  about  labor  as  a 
measure  of  value,  and  possibly  as  to  gold  being  a  standard 
by  which  to  ascertain  the  depreciation  of  inconvertible  cur- 
rency. Some  speak  with  doubt,  but  the  majority  consider  it 
a  perfect  measure. 

N.  S.  B.  This  branch  of  the  subject  we  have  already 
discussed.  The  practical  lesson  to  be  learned,  before  at- 
tempting to  do  away  with  the  fallacy  that  gold  and  silver 
coins  are  commodities  like  wheat,  cloth,  cattle,  and  iron,  is, 
to  go  back  to  Adam  Smith,  and  forget,  if  possible,  all  that 
has  been  taught  since.  Adam  Smith  insisted  that  bank- 
notes ought  not  only  not  to  exceed  the  volume  which  would 
in  their  absence  be  filled  by  gold  and  silver,  but  that  they 
ought  to  come  a  little  short  of  it.  Having  fully  learned  this 
lesson,  the  next  lesson  is  one  of  fact.  Do  the  banks  of  the 
United  States,  even  when  their  notes  are  convertible  into 
gold  on  demand,  maintain  in  their  coffers  a  metallic-bank- 
note redemption  reserve,  varying  at  short  intervals?  This 
is  the  true  and  only  test  of  their  being  within  the  law  of 
Adam  Smith.  The  next  and  third  lesson  O.  P.  E.  and  his 
friends,  the  economists  of  both  countries,  have  to  learn,  is, 
whether  upon  principles  of  sound  reason  there  is  any  differ- 
ence between  the  variation  of  gold  in  their  banking  reserve 


96  MONETARY  AND   INDUSTRIAL  FALLACIES. 

as  compared  with  bank  debt  by  book,  and  the  variation  be- 
tween gold  in  bank-note  redemption  reserve  and  the  out- 
standiiiir  vohnne  of  bank-notes.  The  former  is  even  more 
important  than  the  hitter,  for  reasons  ah-eady  given,  but  can 
any  writer  or  banker  give  a  sound  reason  why  it  is  not  at 
least  as  important?  In  the  former,  notes  take  the  place  of 
so  much  gold  ;  in  the  latter,  gold  is  economized.  The  econ- 
omy of  gold  ought  to  be  a  certain  quantity,  as  much  so  as 
the  volume  of  bank-notes. 

0.  P.  E.  What  else  have  they  to  learn  ? 
N.  S.  B.  That  production  and  not  commerce,  national  or 
international,  is  the  source  and  origin  of  deposits.  All  pro- 
duction gives  rise  to  a  money  exchange  to  pay  for  labor,  and 
when  the  products  of  labor  are  consumed,  there  ought  to  be 
within  short  periods,  so  far  as  actual  commerce,  which  means 
actual  exchanges  of  commodities,  goes  on,  a  reexchange  of 
the  money  paid  out  to  labor  for  labor's  products,  thus  bal- 
ancing the  first  exchange  by  the  second,  and  returning  the 
money  to  the  lender.  This  is  contraction  of  circulation, 
which  ought,  within  reasonable  limits,  to  follow  the  contrac- 
tion of  commodities  through  consumption.  When  they  have 
learned  Adam  Smith's  lesson,  and  have  come  to  the  conclu- 
sion that  this  lesson  is  applicable  to  the  banking  reserves  of 
their  own  bankers,  the  next  lesson  to  be  learned  is,  that  bank 
expansion  does  not  come  of  itself  as  a  mere  system  of  credits. 
It  is  not  a  cause  :  it  is  only  the  result  of  money  paid  out  for 
labor  faster  than  labor's  products  will  sell,  and  the  rise  of 
prices  is  a  phantom  which  lures  the  producer  on  to  more 
production,  until  rectification  comes  by  a  crisis. 

C.  B.  C.  What  difference  can  it  make  to  the  American 
producer  whether  prices  are  high  or  low,  if  money  is  abun- 
dant ?  If  prices  are  high,  there  is  a  compensation  all  around  : 
one  commodity  alone  does  not  rise,  but  all,  including  what  he 
and  others  produce,  rise  together. 

N.  jS.  B.  Suppose  general  prices  in  England  to  range  rela- 
tively lower  than  in  the  United  States.  Wheat  is  thus  rela- 
tively cheapeiied  in  the  United  States  by  the  action  of  Eng- 
land as  one  of  the  parties  to  the  bargain,  and  the  American 


MONETAKY   AND  INDUSTRIAL  FALLACIES.  07 

manufacturer  has  to  pay  the  producer  of  wheat  higher  on  his 
remaining  produce  whicli  is  sold  exchisively  at  home.  Again, 
suppose  he  owes  the  banks  fifty  thousand  dollars  for  money 
paid  labor  directly  and  indirectly,  by  the  purchase  of  raw 
material,  for  which  he  has  to  show,  as  the  result,  cloth,  which 
he  values  at  sixty  thousand  dollars.  A  crisis  brings  it  to  auc- 
tion, and  it  is  soltl  for  forty  thousand  dollars.  Has  he  not 
lost  by  contraction  more  than  he  ever  gained  by  expansion  ? 
What  he  loses,  he  loses  by  unduly  expanded  production, 
made  possible  by  the  expansion  of  the  circidation  of  money. 
The  units  of  money  and  of  goods  are  the  same  as  when  he 
bought :  the  real  contraction  is  in  production  and  consump- 
tion. Again,  wheat  is  now  worth  as  much  as  it  has  averaged 
for  the  last  seven  years,  but  iron  and  cloth  have,  taken  to- 
gether, fallen  one  half  in  price.  The  nominal  and  the  real 
price  of  both  wheat  and  goods  now  coincide,  through  the 
operation  of  the  paramount  forces  which,  sooner  or  later, 
control  the  movements  of  money,  and  place  values  in  their 
true  proportions.  The  crisis  is  not  caused  by  a  destruction 
of  means.  The  enormous  destruction  of  means  did  not  bring 
on  a  crisis  at  the  close  of  the  late  civil  war  in  the  United 
States,  nor  in  England  at  the  close  of  the  wars  with  Na- 
poleon, in  1816.  A  ci'isis  is  a  banking,  commercial,  and 
industrial  affair,  and  comes  because  the  producers  are  in  debt 
and  cannot  sell.  What  is  wanted  is  to  brinjj  bankincr  re- 
serve  into  harmony  with  all  commercial  transactions,  Avhole- 
sale  as  well  as  retail,  so  that  when  A.  draws  his  check  it  will 
be  specially  limited  by  his  own  credit,  and  generally  by  the 
total  of  bank  debt,  while  the  latter  will  be  limited  by  the 
reserve.  Bills  of  exchange  will  be  limited  by  merchandise, 
and  merchandise  by  the  ratio  of  reserve  to  bank  debt.  ]\Ier- 
chandise  will  still  be  produced  by  the  aid  of  bank  loans,  but 
production  will  be  kept  in  subordination  to  actual  markets, 
instead  of  being  allowed  to  proceed  so  far  in  advance  that  a 
crisis  is  the  only  method  of  rectification. 

0.  p.  E.  What  would  you  lay  down  as  the  law  in  rela- 
tion to  the  origin  of  deposits  for  the  United  States,  in  the 
fewest  possible  words  ? 

7 


98  MONETARY  AND   INDUSTRIAL  FALLACIES. 

N.  S.  B.  They  arise  from  production  on  credit,  and  not 
sales.  If  they  arose  from  sales  only,  your  doctrine,  or  rather 
the  doctrine  of  some  of  you,  —  for  instance,  Mr.  Price,  — 
that  there  can  be  no  excess  or  inflation  of  bank-notes,  as  he 
calls  it,  would  be  true,  because  it  is  a  logical  inference,  from 
your  and  his  theor}^  that  deposits  arise  from  the  sales  of 
commodities.  This  is  true  only  in  the  subordinate  sense  that 
you  may  sometimes  arrive  at  a  partial  view  of  truth  by  argu- 
ing from  effects,  instead  of  going  back  to  causes.  This  par- 
tial method  makes  your  science  entirel}^  imperfect.  If  de- 
posits never  arose  until  merchandise  had  first  been  ^^roduced, 
paper  money  would  give  steady  prices,  without  being  made 
convertible.  Its  purchasing  power  would  be  maintained 
steadily,  because  it  could  never  be  paid  out  for  labor  and 
profits  of  capital,  until  they  had  jointly,  by  the  mutual  aid 
of  each  other,  produced  their  merchandise  and  brought  it 
to  market.  This  would  be  a  continual  guaranty  to  the 
banks  loaning  the  paper  that  it  could  not  be  exchanged  for 
merchandise  by  A.,  the  borrower,  or  his  laborers,  without 
being  shortly  afterwards  reexchanged  for  the  merchandise 
A.  produced,  so  as  to  enable  A.  to  pay  his  debt  in  bank. 

0.  P.  E.  You  assert,  then,  that  unsteady  prices  result 
from  the  fact  that  loans  of  money. are  made  by  banks  to 
labor  and  capital  before  producing,  as  well  as  to  buyers 
who,  as  merchants,  step  into  their  place  by  purchasing  the 
product. 

N.  S.  B.  I  not  only  assert  this,  but  I  add  that  deposits 
arise  entirely  from  money  paid  out  of  the  reserve  to  labor 
and  capital,  to  produce  that  which  is  continually  in  excess 
of  consumers'  markets,  to  the  amount  of  the  average  volume 
of  deposit  loans,  less  loans  made  to  those  who  turn  out  to  be 
unproductive  consumers.  Loans  made  to  buyers  of  agi'icul- 
tural  produce,  exclusive  of  the  raw  material  which  labor  and 
capital  have  worked  up,  diminish  reserve  temporarily,  but  in 
a  short  time,  and  as  they  are  sold  to  consumers,  restore  the 
reserve  and  at  the  same  time  reduce  bank  debt,  by  enabling 
borrowers  to  pay.  Labor  receives  bank-notes  in  advance  of 
sales  of  its  pi-oduct,  and  capital  receives  the  same,  or  a  credit. 


MONETARY   AND   INDUSTRIAL  FALLACIES.  99 

Both  diminish  the  reserve  by  diminishing  its  ratio  to  bank 
debt.    Labor  expends  a  hirge  portion  of  its  earnings  and  pro- 
duction of  its  profits  in  order  to  live.     That  portion  is  rede- 
posited  and  increases  bank  debt  as  much  as  it  increases  the 
reserve  :  and  so  of  savings  deposited  in  savings  banks,  and 
by  the  hitter  in  commercial  banks.     The  profits  of  capital 
result  largely  from  sales  of  overstock  to  merchants,  who  pay 
by  the  aid  of  bank  loans,  and  diminish  the  reserve  by  in- 
creasing bank  debt.     Aside  from  these  profits,  the  sales  of 
overstock  neither  increase  nor  diminish  either  bank  debt  or 
reserve.     They  only  give  the  banks  a  new  set  of  debtors  for 
their  old  ones.     The  reserve  is  the  money  deposited  from 
proceeds  of  sales  in  consumers'  markets ;  bank  debt  is  what 
the  banks  o\\;^e  for  depositors'  money  loaned.     To  fix   the 
ratio  of  bank  reserve  to  debt  is,  therefore,  merely  to  stop 
using  the  money  of  commerce  in  loans  to  pay  labor  and  capi- 
tal, after  loans  have  reached  a  certain  point.     The  political 
economy  of  the  United  States  and  Great  Britain  for  their 
benefit  as  nations,  for  the  benefit  of  the  whole  commercial 
world,  for  the  comfort  of  labor  and  the  safety  of  capital,  in- 
stead of  teaching  that  there  can  be  no  overproduction,  ought 
to  teach  that  it  is  not  only  possible,  but  that  it  has  been  the 
cause  of  great  injury  and  loss,  morally  and  physically,  espe- 
cially within  the  last  few  years,  in   the  United  States.    It 
ouglit  to  teach  that  bank  expansion  arises  from  this  cause ; 
that  real  loss  always  follows  overproduction,  but  loss  is  for 
a  time  disguised  by  the  expansion ;  that  gold  and  silver  do 
not  of  themselves  possess  steadiness,  nor  are  they  a  stand- 
ard, although  in  their  character  of  units  of  money  distrib- 
uted by  commerce,  they  are  the  safest  and  steadiest  of  all 
money,  and  therefore  Adam  Smith's  lesson  ought  to  be  well 
learned,  and  applied  to  all  banking  reserve.     It  should  teach 
that  deposit  debt  is  not  money,  but  that  the  reserve  is  alone 
money,  —  the  money  of  commerce,  —  always  more  than  suf- 
ficient to  furnish  units  of  money  to  make  all  the  purchases 
depositors  would  make  if  they  had  their  respective  deposits 
on  hand  in  gold  or  bank-notes,  after  producers  on  credit  have 
been  supplied  with  an  additional  fund  over  and  above  what 


100  MONETARY  AND  INDUSTRIAL   FALLACIES. 

they  could  have,  were  there  no  deposits,  equal  to  the  differ- 
ence between  total  deposits  and  total  reserve. 

C.  B.  C.  If  you  are  in  the  light,  Mr.  N.  S.  B.,  then  I  am 
entirely  in  the  dark,  and  so  is  O.  P.  E.  You  say  that  the 
primary  cause  of  the  present  distress  is  the  want  of  harmony 
in  the  exchanges  between  the  products  of  labor,  and  that  a 
rectification  of  the  exchanges  is  now  going  on.  If  that  is 
really  so,  greenbacks  and  convertible  bonds  piled  mountain 
high  and  capped  with  silver,  would  not,  if  placed  in  the  scales, 
rectify  the  balance  any  more  than  the  gods  in  the  fable  could 
draw  Jupiter  out  of  heaven  by  a  golden  chain.  If  you  are 
riijht,  I  have  the  satisfaction  of  knowing  that  I  am  more 
logical  and  consistent  than  O.  P.  E.,  with  all  his  irony  about 
greenbacks  and  convertible  bonds.  He  says  bank  credits  are 
like  mere  mercantile  credits  set  off  against  each  other,  and 
he  and  his  friends  declare  that  they  are  never  in  excess  of 
commodities  sold  to  consumers.  If  he  is  right,  there  can  be 
no  such  thing  as  an  excess  of  loans,  and  therefore  no  excess 
of  bank  or  government  notes.  I  agree  with  him  that  there 
can  be  no  excess  of  commodities  through  bank  loans,  and 
hence  there  can  be  none  through  any  other  loans,  whether 
made  by  the  government  or  not.  I  perceive  now  that  when 
he  is  talking  about  bank  credit,  he  is,  although  he  seems  not 
to  be  aware  of  it,  really  talking  about  money  all  the  time. 
If  he  could  carry  out  his  fancies  about  universal  clearing,  he 
would  give  gold  a  clear  riddance  out  of  the  world  of  com- 
merce. He  and  his  friends  have  already  done  it  but  in  name. 
They  say  the  gold  in  the  reserve  has  no  relation  to,  and  no 
connection  with,  bank  credits  and  clearings:  gold,  they  say,  is 
a  good  thing  at  retail,  but  useless  at  wholesale.  It  really 
seems  to  me  that  N.  S.  B.'s  argument  is  unanswerable.  How, 
he  asks,  can  you  cut  commerce  in  two,  and  have  one  kind  of 
money  at  retail  and  another  at  wholesale  ?  Would  it  not  be 
quite  as  reasonable  to  say  that  commerce  has  one  kind  of 
goods  at  wholesale  and  another  at  retail,  or  to  suppose  that 
a  steam  engine  can  be  worked  in  two  separate  parts  ?  I  still 
adhere  to  my  theories  about  production,  labor,  and  money, 
but  I  am  at  least  consistent.     I  shall  take  time,  however,  to 


MONKTAUY   AND    INDUSTIUAL   FALLACIES.  101 

think  more  of  the  theories  of  N.  S.  H.  and  his  friend.  They 
can't  be  examined  fully  in  one  day.  I  am  bound  in  all  can- 
dor to  say  that  N.  S.  B.'s  assertion  that  the  production  and 
exchanges  of  merchandise  are  the  objects  really  sought  by 
the  use  of  money,  wliich  is  only  an  auxiliary,  is  very  forcible. 
If  it  be  such,  then  I  sup[)0se  its  value  must  be  the  result  of 
express  or  tacit  convention,  and  I  think  I  might  say  the  lat- 
ter, with  reasonable  certainty.  If  such  is  the  case,  then,  as 
he  says,  all  money  must  be  a  series  of  units,  gold  and  silver 
as  well  as  paper.  I  now  think  that  must  be  so,  but  I  want 
to  think  npon  it  for  a  long  time,  and  therefore  I  ask  N.  S.  B. 
to  state  as  concisely  as  possible  his  friend's  theory  upon  the 
subject. 

N.  S.  B.  His  theory  is,  that  when  gold  and  silver  were 
bartered,  as  they  may  possibly  have  been  before  they  came 
into  general  use  as  money,  they  were  bartered  for  each  other 
or  for  other  commodities,  in  the  same  way  iron  and  copper 
would  be  now,  in  the  absence  of  money,  and  indeed  as  they 
are  now  indirectly  exchanged  for  each  other  by  the  aid  of 
money  as  an  auxiliary,  if  for  the  purpose  of  comprehending 
this  indirect  exchange,  we  mentally  eliminate  from  the  two 
equations  necessary  to  effect  it  the  conventional  values  in 
each,  and  reduce  the  two  to  one.  The  values  of  the  iron  and 
copper,  or  gold  and  silver,  reckoned  in  each  other  respect- 
ively, then  constitute  the  two  sides  of  the  equation.  The 
units  of  valuation  between  the  iron  and  the  copper,  or  gold 
and  silver,  or  either  of  these  and  other  commodities,  are  the 
statement  in  an  intelligible  form  of  the  relations  between  the 
iron  and  the  copper,  or  either  of  these  and  other  commodities, 
founded  on  intrinsic  utility,  real  or  supposed;  the  demand 
growing  out  of  that  utility  and  quantity  on  hand  to  be  ex- 
changed. But  when  gold  and  silver  came. into  use  as  com- 
modities of  universal  exchange,  they  could  by  no  possibility 
be  used  in  any  other  manner  than  by  leaving  out  of  consid- 
eration entirely,  intrinsic  utility,  wliich  is  the  only  founda- 
tion for  what  is  called  their  intrinsic  value ;  and  that  being 
eliminated,  we  can  think  of  them,  and  therefore  use  them 
only  in  the  character  of  localized  units,  measuring  the  rela- 


102  MONETARY  AND   INDUSTRIAL  TALLACIES. 

tions  of  value  between  those  things  we  exchange  for  actual 


use. 


C.  B.  C.  How  has  it  happened,  then,  that  the  production 
of  silver  having  been  sometimes  at  the  rate  of  forty-five  and 
perhaps  never  less  than  thirty  pounds  to  one  of  gold,  gold 
stood  so  long  at  the  ratio  of  fifteen  and  one  half  to  one  of  sil- 
ver as  material  for  making  what  you  call,  in  the  language  of 
your  science,  metallic  units  of  money,  and  now  stands  at  no 
more  than  seventeen  and  three  quarters  or  possibly  eighteen 

to  one  ? 

N.  S.  B.    The  reason  is,  because  the  element  of  weight  of 
masses  produced,  without  reference  to  intrinsic  qualities  of 
either  mass,   being  the  only  one  upon  which   conventional 
value  can  be  predicated  in  the  very  nature  of  the  case,  a 
much  larger  weight  in  proportion  of  silver  than  of  gold  has 
been  manufactured  for  purposes  other  than  money.     Assum- 
ing the  production  of  silver  to  have  averaged  forty-five  pounds 
for  every  pound  of  gold,  and  the  value  of  gold  to  silver  as 
bullion  to  be  as  15  to  1,  then  one  hundred  and  five  pounds 
of   silver   have   been   manufactured  for  those  purposes,  for 
every  pound  of  gold.     The  exposure  of  silver  to  loss  and  de- 
structive agencies  has  been,  therefore,  compared  with  gold, 
as  one  hundred    and  five  to  one.     My  friend  has  assumed 
the  elements  of  production  and  ratios  of  bullion  values.     Of 
course  they  are  only  approximately  correct.     Silver,  there- 
fore, as  compared  with  gold  bullion,  is  worth  about  three 
times  as  much  as  products  of  mass  compared  to  mass  of  the 
two  kinds  of  bullion  would  indicate.     Here  is  mathematical 
demonstration  of  the  truth  of  my  friend's  proposition,  that 
intrinsic  value  founded  on  intrinsic  utility  must  be  elimi- 
nated in  point  of  science  from  gold  and  silver  coin,  as  they 
are  already  from  bank-notes,  and  all  other  forms  of  money. 
The  indispensable  condition  which  precedes  the  use  of  any 
kind  of  material  (even  w^heat)  for  the  manufacture  of  units 
of  money,  is  the  elimination  of  intrinsic  value,  founded  on  in- 
trinsic utility  and  limitation  of  supply.     The  ratio  of  pro- 
duction  being   assumed   as   45    to    1,  the  ratio  of   demand 
founded  on  intrinsic  utility,  which  goes  by  the  name  of  in- 


MONETARY   AND    INDUSTRIAL   FALLACIES.  103 

trinsic  value  is  as  15  to  1.  If  it  could  be  carried,  or  rather 
if  it  would  carry  itself,  tlirou<jli  the  forces  in  operation,  up 
to  3  to  1,  it  would  do  away  with  the  well-founded  objections 
to  silver  in  point  of  weight.  This,  however,  is  impossible. 
The  ratio  has  been  remarkably  stable,  and  may  be  consid- 
ered as  the  most  stable  barter  ratio  between  any  two  known 
commodities,  accidents  of  demonetization  eliminated.  Sil- 
ver thus  stands,  by  the  consumer's  estimate  to  gold,  in  the 
value  or  barter  ratio  of  15  to  1,  assuming  the  elements  of 
computation  which  are  only  approximately  to  be  exactly 
true,  instead  of  the  ratio  of  45  to  1,  as  indicated  by  product. 
But  although  silver  is  produced  in  the  proportion  of  45  to 
1  as  compared  with  gold,  instead  of  one  pound  of  silver 
being  worth  only  one  forty-fifth  part  of  a  pound  of  gold, 
it  is  actually  worth  one  fifteenth,  or  three  times  as  much 
as  the  ratio  of  production  would  indicate.  Noting  the  nec- 
essarily rigid  terms  of  the  conventional  barter  rate,  aside 
from  the  use  of  either  metal  for  purposes  other  than  money, 
and  assuming  each  metal,  if  all  of  it  were  coined,  to  lose  in 
mass,  in  ratios  harmonizing  with  product,  one  pound  of  gold 
ought  to  be  worth  forty-five  pounds  of  silver.  This  would 
make  silver  wholly  unfit  for  money.  Its  actual  use  as  money, 
except  for  subsidiary  purposes,  arises  from  its  high  utility  as 
a  commodity.  The  great  importance  of  silver,  then,  for  pur- 
poses of  manufacture,  aided  perhaps  by  diminished  produc- 
tion, will  probably  compensate  in  the  end  for  the  accidents 
of  demonetization. 

C.  B.  C.  Why  do  not  the  great  variations  in  annual  pro- 
duct change  what  you  call  the  barter  rates  between  gold  and 
silver,  as  they  do  between  copper,  lead,  platinum,  and  other 
metals  ? 

N.  S.  B.  Because  the  principal  controls  the  minor  utility, 
and  for  the  further  reason  that  the  principal  utility  is  cumu- 
lative. 

C  B.  C     Explain  yourself. 

N.  S.  B.  The  first  utility  of  gold  and  silver  is  conven- 
tional. Some  material  must  have  been  adopted  as  money, 
and  gold  and  silver  were  so  adopted  by  an  instinct  of  fitness 


10-i  MONETARY   AND   INDUSTRIAL   FALLACIES. 

perhaps  like  that  which  makes  bees  place  their  comb  in 
layers  of  curvature  best  adapted  to  its  support.  You  can 
idealize  upon  this  subject  as  mucli  as  you  like.  That  is  a 
matter  of  speculation.  I  am  now  talking  abou^t  facts ;  per- 
haps you  might  call  them  mathematical  truths.  The  use 
being  conventional,  it  absorbs  every  pound  offered:  there 
can  be  no  limit  to  the  use,  beaause  there  is  none  to  the  con- 
vention. But  the  element  of  intrinsic  utility  consumes  two 
thirds  of  the  silver  and  only  one  third  of  the  gold  product, 
leaving  fifteen  pounds  of  silver  to  every  pound  of  gold  re- 
maining for  use  as  mone}^  The  convention,  by  the  tacit 
terms  of  which  intrinsic  utility  is  eliminated  from  the  bar- 
ter ratio  of  the  two  metals,  leaving  respective  weights  as  the 
only  one  upon  which  conventional,  in  other  words  mathe- 
matical, value  (for  all  conventional  value  must  be  founded 
upon  mathematical  proportion),  can  be  founded,  sustains  it- 
self throughout.  It  takes  whatever  manufacturing  industry 
leaves,  in  the  proportion  of  weight  to  weight,  remaining  in 
the  bullion  market,  as  it  would  have  done  if  not  a  single 
pound  bad  been  used  for  purposes  other  than  money,  sub- 
ject to  the  proviso  that  the  weight  of  the  mass  tlius  thrown 
upon  the  convention  would  not  have  made  it  necessary  to 
give  up  silver,  as  it  undoubtedly  must  have  done.  This  is 
one  of  the  reasons  for  the  general  remonetization  of  silver. 

G.  B.  O.  This  demonstration,  if  we  accept  it,  annihilates 
all  distinction  between  different  kinds  of  money.  It  makes 
all  money  a  series  of  units,  the  difference  being  one  of  rela- 
tive fitness,  greater  or  less. 

N.  S.  B.  Not  only  so,  but  it  shows  why  gold  and  silver 
are  the  safest  and  steadiest  in  respect  to  harmony  of  produc- 
tion, and  therefore  as  a  measure  of  relative  values  between 
commodities,  when  they  are  distributed  with  them  through 
commerce. 

0.  B.  C.  You  say  that  Adam  Smith  adopted  this  view 
in  respect  to  the  distribution  of  bank-notes. 

N.  S.  B.  I  say  that  Adam  Smith  demonstrated  the  folly 
of  some  of  the  legitimate  conclusions  from  the  theory  of 
mercantile  value  in  money  as  money,  while  he  and  all  other 


MONETARY   AXD   INDUSTRIAL  FALLACIES.  105 

British  as  well  as  French  and  American  writers  maintain 
the  theory  itself,  and  call  gold  and  silver,  as  money,  a  meas- 
ure of  value,  measured  themselves,  as  the  British  writers  alone 
affirm,  by  the  labor  they  cost,  or  the  labor  it  would  now  cost 
to  reproduce  them. 

American  writers  reject  labor  as  a  measure  of  value,  as 
did  that  great  writer,  M.  J.  B.  Say.  The  masterly  sagacity 
of  Smith,  notwithstanding  his  theory,  enabled  him  to  per- 
ceive that  bank-notes  ought  not  in  volume  to  be  in  excess 
of  the  metal  they  displace,  but  on  the  contrary  to  fall  con- 
siderably short  of  it.  He  never  talked  about  any  essential 
difference  between  the  work  accomplished  by  bank-notes  and 
that  accomplished  by  gold  and  silver.  He  had  the  evidence 
of  his  own  eyes  that  there  is  none ;  and  the  banking  in  his 
time,  so  much  less  complex  than  ours,  did  not  disguise  the 
process  and  make  him  think  the  banks  were  dealing  in  any- 
thing but  money. 

C.  B.  C.  State  in  plain  terms,  that  I  can  understand,  the 
diffei-ence  between  the  two  kinds  of  banking.  If  you  are 
right,  the  subject  is  one  of  international  as  well  as  national 
importance.  O.  P.  E,  and  his  friends  and  all  bankers  are 
firm  in  their  opinion  that  a  bank  deals  in  credits  ;  that  these 
credits  are  something  very  different  from  money,  —  in  short, 
the  same  as  mercantile  credits.  Now  we  all  know  that 
mercantile  credits,  strictly  speaking,  have  nothing  to  do  with 
production :  they  arise  only  from  sales  between  merchants, 
and  hence  have  no  relation  to  overproduction,  as  they  cer- 
tainly have  none  to  inharmonious  or  redundant  production. 
It  seems  to  me  that  here  lies  the  test  which  must  decide 
whether  your  theory  or  theirs  is  the  true  one. 

If  bank  expansion  gives  rise  to  overproduction,  it  cannot 
be  mercantile  credit ;  it  must  be  money,  for  I  know  (and  S.  L. 
himself  and  all  his  fellow-laborers  know)  that  it  takes  labor 
to  produce  anything  ;  labor  must  be  paid  with  money  and 
not  with  credit,  for  that  would  imply  that  it  had  to  wait  for 
the  sale  of  the  product,  as  S.  L.  himself  said  the  other  day 
(I  see  he  laughs  at  the  idea  of  being  paid  in  credit)  when 
•we  were  talking  about  paying  workmen  by  checks. 


106  MONETAKY  AND   INDUSTRIAL  FALLACIES. 

iV.  /S.  B.  The  only  distinction  which  can  be  made  in  rea- 
son between  the  two  kinds  of  banking,  if  it  be  true  that 
money  is  not  an  end  in  itself,  but  only  means  to  an  end,  — 
if  man  invented  money  instead  of  money  inventing  him,  — 
is  in  the  effects  produced,  the  quantity  of  production,  the 
number  of  sales,  the  rise  of  prices  which  frequently  disguises 
a  real  fall,  and  the  resulting  "  depression,"  as  it  is  called. 
If  a  purchase  is  made  at  wholesale  by  means  of  a  check 
transferring  "  bank  credit,"  what  possible  difference  can  it 
make  what  we  call  it,  if  it  has  the  same  effect  as  a  delivery 
of  a  like  amount  in  bank-notes  ?  The  drawer's  check  is  lim- 
ited by  his  credit  in  bank,  and  his  credit  is  limited  imper- 
fectly by  banking  reserve,  because  the  total  of  bank  credits 
may  be  indefinitely  extended,  still  leaving  abundance  of 
money  in  the  reserve,  a  matter  of  fact  to  which  Mr.  Price 
has  done  good  service  in  calling  the  attention  of  scientists 
and  the  banking  world.  The  theory  of  banking  now  is,  that 
the  banks  have  borrowed  all  the  money  of  depositors  and 
own  their  reserve :  it  has  come  pretty  near  maintaining  that 
they  own  their  own  debt,  which  they  owe  depositors.  The 
English  mind  has  not  risen  above  overtrading  and  speculation 
as  the  cause  of  industrial,  commercial,  and  banking  crises. 
Clearing  has  been  in  use  so  long,  and  the  movements  of  gold 
so  apparently  trifling,  that  the  inference  is,  that  the  outward 
current  of  gold  through  the  checks  of  buyers,  returned  by 
banks  as  the  agents  of  sellers,  which  through  clearing  is 
arrested  in  the  bank  by  setting  off  one  current  against  the 
other,  is  simply  a  set-off  of  debts,  of  credits,  or  of  debts 
against  credits,  for  they  have  never  exactly  defined  the  proc- 
ess: even  O.  P.  E.  could  not  do  it  the  other  day.  The 
small  difference  which,  when  loans  are  in  the  ascending 
scale,  marks  the  daily  increment  of  outstanding  circulation 
by  slow  depletion  of  the  reserve,  corresponding  with  a  like 
increment  of  bank  debt,  is  supposed  to  supply  the  small 
change  of  the  retail  markets,  while  the  daily  increment  of 
the  reserve,  when  bank  debt  is  contracting,  is  supposed  to  be 
the  excess  returned  from  the  same  market. 

The  British  theory  prevails  in  the  United  States.     My 


MONETAliY   AND   INDUSTRIAL  FALLACIES.  107 

friend  says,  and  I  agree  with  him,  that  it  is  high  time  to 
decide  the  question  whether  the  British  theory,  which  he 
believes  to  have  been  very  disastrous  in  its  effects  upon  the 
productive  energy  of  the  United  States,  is  true.  He  says,  if 
the  reserve  has  no  connection  with  bank  loans,  as  certainly 
must  be  the  case  if  bank  debt  has  none,  gold  is  a  source  of 
useless  expense ;  if  there  is  perfect  harmony  of  production, 
inconvertible  bank-notes  are  good  enough  ;  if  wholesale 
transactions  take  care  of  themselves  without  gold,  retail 
can  do  the  same  by  using  what  O.  P.  E.  sometimes  calls 
bank  credit  and  sometimes  bank  debt,  in  the  shape  of  bank- 
notes. If  all  the  gold  and  silver  and  bank-notes  in  Paris 
were  banked  in  deposit,  and  ten  per  cent,  of  the  total  were 
found  sufficient  to  make  all  the  payments,  ninety  per  cent, 
being  locked  up,  and  checks  and  clearings  used  to  the  utmost 
extent,  the  bank  books  registering  all  the  movements,  he 
asks,  who  in  his  senses  would  pretend  that  the  bank  was 
dealing  in  credit  or  debt?  But  suppose,  for  the  sake  of  ar- 
gument, that  American  and  English  banks  deal  in  their  own 
debt.  How  can  they  do  it  without  being  at  once  converted 
into  banks  of  issue?  A  credit  following  a  loan  then  be- 
comes a  substitute  for  a  like  amount  of  bank  debt  in  the 
shape  of  bank-notes  issued  and  deposited.  The  credit,  or 
more  properly  the  debt,  is  then  circulated  by,  while  it  at  the 
same  time  limits  checks.  Upon  the  English  and  American 
theory  maintained  by  O.  P.  E.  and  his  friends,  then,  a  bank 
of  deposit  and  loan  is  at  once  converted  into  a  bank  of  issue, 
and  an  intelligible  although  imperfect  relation  between  re- 
serve and  debt  at  once  established.  To  this  alternative  then 
are  they  driven :  they  must  either  admit  that  banks  deal  in 
their  reserve  only,  or  in  their  own  debt  as  banks  of  issue, 
taking  the  notes  and  bills  of  their  customers  in  exchange ; 
the  reserve,  upon  the  former  supposition,  belonging  to  depos- 
itors ;  in  the  latter,  to  bankers.  One  of  these  two  the- 
ories must  be  true ;  in  fact,  both  are  true :  the  first  in  an 
absolute,  the  second  in  a  relative  or  subordinate  sense.  The 
first  is  absolutely  true,  because  banks  deal  only  in  what  was 
originally  deposited,  and  the  reserve  is  sufiioient  to  make, 


108  MONETARY  AND   INDUSTRIAL  FALLACIES. 

and  actually  makes,  all  payments ;  the  second  is  relatively 
or  subordinately  true,  because  a  bank  of  deposit-loan  could 
at  once  be  converted  into  a  perfect  bank  of  issue  by  the 
bank  issuing  its  notes  to  depositors,  closing  its  books  as  a 
deposit-loan  bank,  and  opening  new  books  as  a  bank  of 
issue ;  retaining  its  reserve  to  redeem  with,  that  being  as 
essential  after  as  before  the  metamorphosis.  The  ideas  and 
terms  of  the  schools,  which  have  been  imported  into  Eng- 
lish common  law,  have  helped  to  originate  and  maintain 
fallacies  in  respect  to  money  and  banking.  Things  i7i  esse 
and  in  posse,  vested  rights,  choses  in  action,  intrinsic  value 
in  a  commodity,  and  its  entire  absence  from  bank-notes, 
have  served  to  perpetuate  the  fallacy  of  a  supposed  radical 
distinction  between  what  is  called  bank  credit  and  gold  as 
commodity. 

C.  B.  C  O.  P.  E.  and  his  friends  have,  for  the  most  part, 
asserted  that  in  point  of  science  there  is  no  substantial  differ- 
ence between  bank  debt  by  note  and  bank  debt  by  book. 
I  must  confess  with  you,  that  it  is  hard  to  find  out  exactly 
what  they  do  mean.  O.  P.  E.  has  just  said  that  he  cannot 
tell  what  his  friends  mean,  and,  therefore,  I  suppose,  he 
hardly  knows  what  he  means  himself.  But  it  seems  to  me 
that  you  have  here  a  clew  to  ascertain  what  they  really 
mean.  If  bank-notes  are  like  ordinary  bank  debt,  in  their 
opinion,  is  it  not  pretty  clear  that  they  are  thinking  about 
gold,  double  barter,  and  commodit}',  on  the  one  hand,  and 
all  forms  of  credit  and  debt,  including  that  of  banks,  on  the 
other  ?  This  gives  you  two  grand  divisions :  exchanges  by 
commodity,  which  is  double,  and  exchanges  by  credit,  which 
is  single  barter.  All  you  need  to  do,  therefore,  is  to  apply 
your  analysis  to  bank-notes. 

N.  S.  B.  You  are  right.  That  is  what  most  of  them 
say  ;  but  in  this,  as  in  some  other  matters,  there  is  an  utter 
want  of  that  logical  precision  which  is  essential.  My  friend, 
in  writing  his  book,  is  not  willing  to  make  such  an  assump- 
tion, because  some  writers  speak  of  what  they  call  bank 
currency  and  set-offs  and  bank  credit  as  being  the  same 
thing  with  mercantile  credit.     Then  they  proceed  further 


MONETARY   AND   INDUSTRIAL   FALLACIES.  109 

and  eoiifound  bunk  credit  with  checks  and  bills  of  exchange, 
and  say  that  nil  international  trade  is  barter.  This  is  the 
language  of  the  scientists,  and  it  is  now  the  language  of 
merchants.  In  the  midst  of  such  chaos  it  is  impossible  to 
perceive,  much  less  to  teach,  monetary  science  without  a 
careful  analysis  of  both  forms  of  banking.  He  will  not 
take  any  man's  admission.  If  he  did  so,  in  the  midst  of 
such  inicertainty  some  other  man  might  say  that  the  admis- 
sion contradicted  his  opinion,  and  could  not  bind  him. 

0.  P.  E.  How  could  you  convert  a  bank  of  discount  and 
deposit  into  a  bank  of  issue? 

N.  >S'.  B.  By  paying  off  depositors  in  its  owai  bank-notes, 
to  be  issued  by  the  bank,  and  refusing  deposits. 

0.  P.  E.     How  would  you  convert  it  back  again  ? 

N.  S.  B.  By  receiving  deposits.  The  reception  or  non- 
reception  of  deposits  determines  whether  the  bank  can^  in 
the  character  of  a  bank  of  deposit,  discount  a  single  dollar  of 
commercial  or  any  other  paper.  Hence  all  you  have  written 
and  taught  about  a  bank  of  deposit  dealing  in  debts  or 
credits  aside  from  its  reserve  is  contradicted  by  your  own 
questions,  for  you  nod  assent  to  my  answers.  Two  mer- 
chants, A.  and  B.,  have  mutual  dealings.  A.  sells  and  deliv- 
ers merchandise  to  the  amount  of  one  thousand  dollars  to  B., 
and  charges  him  in  account ;  and  B.  sells  to  A.  to  the  amount 
of  fifteen  hundred  dollars,  and  charges  A.  in  account.  The 
several  entries,  looked  at  from  one  point,  are  debits,  and  from 
another  credits.  Did  the  entries  cause  the  merchandise 
to  move,  or  did  the  movements  of  merchandise  cause  the 
entries  ?  Do  the  cars  on  the  Boston  and  New  York  route, 
by  way  of  Springfield,  move  the  locomotives,  or  the  latter 
the  former?  If  a  deposit  bank  were  established  in  France 
to-morrow%  the  government  taking  the  management  of  it, 
not  a  single  franc  being  loaned,  the  movements  of  the  money 
being  effected  by  checks,  and  handling  saved  to  a  great 
extent  by  clearing,  ten  per  cent,  of  the  deposit  being  in 
time  found  sufficient  to  make  all  the  payments,  and  ninety 
per  cent,  being  therefore  locked  up  by  order  of  government, 
to  keep  it  more  safely ;  would  the  debits  and  credits  on  the 


110  MONETARY   AND   INDUSTRIAL  FALLACIES. 

books  constitute  the  payments?  Would  the  bank  be  a 
dealer  in  credits  ?  Would  the  entries  move  the  metal  out 
of  reserve,  or,  what  is  exactly  the  same  thing,  the  right  or 
power  to  use  it,  by  leaving  it  in  the  reserve,  or  by  taking  it 
out,  as  might  be  more  convenient ;  or,  on  the  other  hand, 
would  payments  in  metal  cause  the  entries  to  take  place? 
Looking  at  the  mercantile  entries,  they  would  demonstrate 
to  an  accountant  the  fact  that  merchandise  had  moved,  and 
looking  at  the  deposit-bank  entries,  they  would  demonstrate 
to  lam  the  movements  in,  out  of,  and  back  into  the  reserve. 
Precisely  so  with  all  deposit  banks,  whether  they  discount 
or  not;  if  they  have  no  "reserve  "  they  cease  to  be  banks  of 
deposit,  and  are  bankrupt.  The  moment  they  are  said  to 
deal  in  their  own  debt,  and  the  assertion  is  admitted,  that 
moment,  if  the  premises  are  true,  they  are  banks  of  issue. 
My  friend  affirms,  therefore,  that  a  deposit  bank  can  no 
more  deal  in  its  own  debt  by  discounting  than  a  house  can 
stand  in  the  air  without  any  foundation.  To  affirm  that  a 
house  so  stands  is  true  only  in  the  sense  that  it  stands.  To 
affirm  that  the  cars  on  the  Boston  and  New  York  route  move 
the  train,  is  true  only  in  the  sense  that  the  whole  train  is 
moved.  To  affirm  that  the  mercantile  credits,  in  the  cases 
supposed,  move  the  goods,  is  true  only  in  the  sense  that 
they  prove  that  such  movements  have  taken  place.  To 
make  such  an  affirmation  could  only  be  deemed  a  figurative 
expression,  and  equally  so  if  made  in  reference  to  the  move- 
ments of  the  deposit  reserve  of  the  French  bank  of  deposit : 
it  could  be  true  only  as  a  conclusion  from  premises,  false  in 
point  of  fact,  but,  nevertheless,  assumed  to  be  true.  The 
fallacy  would  lie  in  assuming  the  evidence  of  a  movement  to 
be  the  movement  itself.  That  an  American  or  English  bank 
deals  in  its  own  debt  is  false.  It  is  not  true  unless  the 
register  of  a  movement  is  the  movement  itself ;  but  such  an 
hypothesis  is  absurd  and  impossible. 

Assuming  it,  however,  to  be  true,  a  connection  is  at  once 
established  between  bank  debt  and  reserve,  and  Smith's  law 
at  once  applies,  —  that  safe  banking  demands  the  maintenance, 
within  short  periods,  of  a  definite  ratio  between  the  debt  and 


MONETARY   AND   INDUSTRIAL   FALLACIES.  Ill 

the  reserve.  Reject  the  proposition  that  a  bank  (L.'als  in 
its  own  debt  as  absurd  and  impossible,  the  true  object  of 
this  definite  ratio  is  shown  to  be,  to  stop  at  a  definite  point, 
or  at  a  point  as  nearly  definite  as  possible,  the  use  of  the 
money  of  commerce  in  the  reserve,  without  stojiping  one 
moment  to  make  an  absurd  distinction  bet*veen  commerce 
at  wholesale  and  commerce  at  retail.  How  absurd  would 
it  be  to  make  any  such  distinction  in  the  case  of  the  French 
bank?  It  is  equally  absurd  to  make  such  a  distinction  in 
the  case  of  American  or  English  banks.  The  Bank  of  Eng- 
land, or  rather  a  metallic  circulation  through  the  agency  of 
that  bank,  was  established  in  1844,  with  the  exception  of  a 
comparatively  small  and  fixed  amount,  corresponding  in 
volume  with  the  debt  due  the  bank  from  the  government. 
The  act  made  more  than  five  sixths  of  the  circulation  metal- 
lic, and  the  intention  was  to  make  the  notes  of  the  bank  cir- 
culate as  gold  would  if  there  were  no  notes.  This  result  has 
been  accomplished,  but  the  effect  of  economizing  gold  was 
not  understood,  because  the  commercial  world  has  never  got 
rid  of  the  theory  of  mercantile  value  in  metallic  money.  It 
never  will,  nor  is  it  desirable  that  it  should,  in  all  respects, 
but  only  far  enough  and  long  enough  to  learn  what  economy 
in  gold  really  means.  The  Bank  of  England  may  very  prop- 
erly be  regarded  as  a  great  deposit  and  discount  bank,  keep- 
ing the  reserve  of  the  other  banks,  as  they  keep  that  of  the 
commercial  community.  Every  depositor  in  a  bank  puts  as 
much  money  in  circulation  as  if  he  had  bank-notes  or  gold  to 
the  amount  of  his  deposit.  The  circulation  (riot  the  volume 
of  money)  of  Great  Britain  is  probably  much  larger  per 
capita  than  that  of  France,  greatly  as  this  may  surprise  C. 
B.  C,  but  there  is  a  vast  difference  in  the  distribution  of  it. 
In  France  it  is  distributed  uniformly  in  proportion  to  cap- 
ital ;  not  so  in  Great  Britain  and  still  less  in  the  United 
States.  The  circulation  per  capita  in  the  United  States  is 
much  larger  than  in  France. 

C,  B.  C.  That  surprises  me,  but  I  will  not  now  dispute 
it.  Your  object,  I  now  perceive,  is  to  restore  the  true  by  im- 
proving the  present  imperfect  relation  between  reserve  and 


112  MONETARY  AND   INDUSTRIAL  FALLACIES. 

bunk  debt,  and  to  make  it  practically  what  Adam  Smith, 
more  than  a  century  ago,  demonstrated  it  to  be,  or  rather 
what  he  demonstrated  it  ought  to  be. 

iV!  S.  B.  That  is  one  of  the  principal  objects  my  friend 
has  in  writing  his  book. 

C.  B.  C.  I  begin  to  see  that  what  he  aims  to  do  is  to 
carry  out  to  its  logical  results  what  we  all,  I  believe,  admit, 
—  the  conventional  character  of  all  forms  of  money.  I  sup- 
pose you  and  he  would  say,  therefore,  that  it  may  be  called  a 
process,  or  plan,  for  effecting  the  exchanges  of  commerce. 

N.  S.  B.  You  have  hit  upon  the  very  words  I  would  em- 
ploy myself.  Bees  secure  their  honey  in  layers  of  comb, 
having  a  curvature  best  adapted  to  sustain  the  weight. 
JMankind,  wiser  in  action  than  in  opinion,  have  hit  upon 
forms  of  money  best  adapted  to  effect  the  exchanges  of 
commodities  in  commerce.  Nothing  can  equal  gold  and 
silver  for  safety  and  stability  as  money  (without  speaking  of 
utility  in  other  respects)  when  distributed  naturally  by  com- 
merce. The  mischiefs  growing  out  of  the  use  of  money  have 
grown  out  of  a  seeming  contradiction  between  what  is  ab- 
solutely and  what  is  only  apparently  true. 

C.  B.  0.     Explain  that  assertion. 

N.  S.  B.  Bank-notes  have  taken  the  place  of  the  pre- 
cious metals  very  naturally.  They  certainly  would  never 
have  been  used  so  extensively  without  good  reasons,  and  I 
am  sure  the  true  reasons  are  very  different  from  those 
actually  given.  The  conflict  I  speak  of  lies  in  part  between 
the  true  reasons  and  the  false  ones.  If  bank-notes  are  with- 
out value,  as  O.  P.  E.  and  his  friends  assert,  we  and  our 
ancestors  have  been  acting  for  generations  under  a  delu- 
sion. That  is  not  probable ;  we  are  really  wiser  in  action 
than  our  words  import.  It  is  certain  that  bank-notes  have 
value  ;  otherwise  we  should  never  have  thought  of  using 
them. 

0.  P.  E.  The  value  lies  entirely  in  convertibility  into 
metal.  Inconvertible  notes  are  in  true  science  worthless. 
It  is  a  delusion  to  suppose  that  value  lies  in  anything  else 
but    convertibility.     Convertibility  accomplished,  the  notes 


MONETARY  AND  INDUSTRIAL  FALLACIES.  113 

have  ro.'u^lied  the  end  of  their  journey :  that  end  is  gold,  be- 
cause gohl  is  an  end  in  itself. 

i\r.  *S'.  B.  So  thought  King  Midas,  until  he  was  driven 
from  his  delusion  by  starvation. 

0.  p.  E.  I  think  I  shall  have  to  qualify  my  assertion  a 
little.  I  use  the  language  employed  by  most  economists  in 
substance,  but  I  think  I  am  rather  too  concise  in  my  scien- 
tific language.  You  are  hardly  able  to  understand  me  with- 
out some  further  qualification.  But  how  shall  I  qualify  tlie 
language  of  science  ?  It  is  certainly  not  easy  to  do  it,  but  I 
think  the  convertible  paper  may  be  said  to  have  some  kind 
of  vahie  in  the  right  to  sue  the  issuing  bank,  and  taking  — 

N.  S.  B.  Excuse  me  ;  but  you  was  about  to  add,  taking 
the  chances  of  collection,  I  suppose? 

0.  P.  E.  You  are  right.  There  is  where  the  value  lies, 
if  any  there  be. 

N.  S.  B.  You  cannot  sue,  however,  at  all  upon  inconver- 
tible paper,  and  hence  it  is  worthless  ? 

0.  P.  E.  You  cannot ;  but  if  you  could,  you  would  onl}-- 
get  the  same  thing  again,  and  possibly  it  might  be  worth 
less  than  the  paper  you  brought  suit  on. 

N.  iS.  B.  You  reason  well,  and  you  are  more  consistent 
than  many  economists,  Mr.  O.  P.  E.,  for  you  do  not  hesitate 
in  carrying  some  of  your  theories  to  their  legitimate  conclu- 
sion. You  make  redemption  in  gold  the  end  in  itself,  as  I 
understand. 

0.  P.  E.     That  is  what  I  have  repeatedly  said. 

N.  S.  B.  But  after  you  have  arrived  at  this  end,  what 
supports  it  ?  The  Indian  who  supposed  the  earth  to  be  sup- 
ported by  a  huge  tortoise  was  unable  to  tell  what  supported 
the  tortoise,  and  you  are  equally  unable  to  tell  what  sup- 
ports gold.  If  gold  is  the  only  object  of  convertibility,  the 
commercial  world  has  been,  for  some  generations  past, 
striving  to  collect  some  thousands  of  millions  at  the  end  of 
law-suits  brought  against  banks,  without  success.  You  are 
deceived,  both  as  to  metallic  money  and  paper  money,  by  a 
fallacy  of  words.  If  paper  is  worth  nothing  but  a  law-suit, 
mankind  have  not  yet  found  it  out.     If  gold  and  silver  coin 


114  MONETARY   AND   INDUSTRIAL  FALLACIES. 

are  useful  for  :iny  purpose  but  to  buy  and  procure  things 
other  than  themselves,  mankind  have  not  yet  discovered  it. 
They  have  'certainly  had  a  different  idea,  however,  about 
gold  and  silver,  to  all  appearance,  do  you  say  ? 

0.  P.  IE.     That  is  what  I  was  about  to  say. 

N.  S.  B.  You  are  right  in  supposing  that  yours  is  the  true 
reason  for  this  idea,  or  rather  one  of  the  avowed  reasons. 
Men  act  sometimes  more  wisely  than  they  talk.  They  call 
gold  a  commodity,  in  the  shape  of  coin  as  well  as  of  plate. 
They  give  this  reason  for  keeping  it,  or  rather  you  give  it  for 
them.  The  true  reason  is,  that  all  experience  shows  it  to  be 
the  safest  money  to  keep.  Hence  if  you  have  an  excess  of 
paper,  it  will  retire  your  gold  into  hoards,  even  in  the 
United  States,  except  so  far  as  it  is  absolutely  necessary  to 
use  it.  All  people  act  upon  this  idea ;  they  use  gold  coin 
as  money  only  when  they  are  compelled  to  do  so ;  they 
instinctively  retire  it  in  preference  to  paper,  whether  they 
assume  it  to  be  a  commodity  or  not. 

C.  B.  C.  What  do  they  think  about  bank-notes  ?  They 
think  one  way  and  act  another,  if  we  take  O.  P.  E.'s  thoughts 
as  a  test.  They  say  a  bank-note  is  good  as  long  as  the  bank 
that  issued  it  is  good  for  the  note ;  but  in  what  sense  they 
believe  the  bank  to  be  good,  they,  perhaps,  have  not  a  clear 
idea.     O.  P.  E.  has  stated  it,  and  stated  it  correctly. 

0.  P.  E.  In  what  sense  did  you  understand  me,  Mr.  N.  S. 
B.? 

N.  S.  B.  In  the  sense  that  the  bank  is  liable  to  suit,  or, 
in  other  words,  that  it  ovres  a  debt,  payable  in  gold,  and  may 
by  law  be  compelled,  while  able,  to  pay  it. 

0.  P.  E.     That  is  correct. 

N.  S.  B.  Here  are  the  two  grand  fallacies,  which,  be- 
neficent in  their  effects  hitherto  in  France,  have  inflicted 
incalculable  evils  upon  the  United  States  and  Great  Britain. 
Germany  has  also  suffered  from  them.  O.  P.  E.  and  the 
banking  world  say  that  credit  pays  debts :  they  say,  again, 
that  debt  pays  debts.  My  credit  is  your  debit,  and  your 
credit  is  my  debit.  What  does  all  this  mean  ?  My  debit  to 
you  means,  simply,  that  I  owe  you  a  sum  of  money  which 


MONETARY   AND   INDUSTRIAL   FALLACIES.  115 

may  be  collected  by  law  so  long  as  I  am  solvent.  Can  the 
fact,  the  existence  of  that  liability,  be  said  to  pay  anything 
any  more  than  forbearance  to  sue,  hope  that  it  will  not  be 
necessary,  and  charity  to  believe  that  it  will  not  ? 

*S'.  L.  What  is  it,  then,  that  pays  ?  I  know  that  a  bank- 
note pays  as  well  as  a  piece  of  gold.  The  only  question  we 
ask  is.  Will  it  pass? 

N.  S.  B.  You  are  right.  What  passes  is  exactly  that 
which  pays  :  what  pays  is  the  number  of  units  marked  on 
the  face  of  the  note,  evidenced  by  the  note  itself,  having  a 
purchasing  power  or  exchangeable  value  guarantied  by  the 
limitation  of  their  number  in  consequence  of  this  vers-  lia- 
bility of  the  bank  and  its  solvency.  The  ability  and  the 
liability  are  not  the  end,  nor  the  exchangeable  value  itself, 
but  the  foundation  of  it,  and  the  means  of  supporting  it. 
The  tacit  convention  upon  which  the  use  of  the  notes  is 
founded  ceases  with  the  foundation  itself. 

0.  p.  E.  In  specie-paying  times  the  notes  of  the  free 
banks  of  Illinois,  which  were  really  not  convertible,  were  cur- 
rent for  a  time  ;  and  bank-notes,  after  banks  have  suspended 
generally,  as  well  as  the  present  national  bank-notes,  are  used 
freely.     Why  is  this? 

N.  S.  B.  Looking  steadfastly  at  the  real  and  not  the  imag- 
inary end,  and  still  insisting  that  the  machinery  has  no 
other  end  than  the  one  it  actually  accomplishes,  the  princi- 
ple underlying  such  money  is  that  which  underlies  all  money. 
Inconvertible  bank-notes,  as  they  are  called,  are  in  reality 
redeemed  by  exchange  upon  commercial  centres.  This  is 
the  real  and  true  redemption  for  commercial  purposes :  re- 
demption in  coin  serves  in  part  as  means  to  this  and,  but 
not  necessarily ;  because,  after  suspension,  redemptions  con- 
tinue as  before,  and  what  is  called  bank  contraction  then  goes 
on  without  restraint.  The  object  of  metallic  redemptions,  in 
point  of  true  science,  is  to  carry  out  the  law  announced  by 
Adam  Smith :  to  keep  the  volume  of  notes  down  to  that  of 
the  gold  whose  place  they  take,  and  this  rule  applies  to  all 
money  circulated  through  bank  loans.  Every  loan,  as  I 
have  demonstrated   with   a  certainty  which   may   be  called 


116  MONETARY  AND   INDUSTRIAL  FALLACIES. 

mathematical,  puts  an  amount  of  money  in  circulation,  as 
the  result,  which,  in  the  absence  of  the  loan,  would  not  then 
and  there  be  put  in  circulation.  It  is  a  general  buying 
power  proportioned  to  the  number  of  units  loaned.  This 
is  expansion  of  circulation,  and  contraction  of  that  circula- 
tion cannot  take  place  until  the  debt  is  paid. 

C.  B.  C.  You  make  all  money,  then,  a  series  of  units,  — 
limitation  being,  in  point  of  science,  the  end  to  be  gained 
by  redemptions  in  coin,  —  limitation  against  undue  expansion 
or  increase  of  the  number  paid  out,  as  compared  with  the 
units  of  goods  bought,  as  well  as  undue  contraction. 

N.  S.  B.  You  have  not  stated  the  object  scientifically, 
because  you  cannot  yet  quite  divest  yourself  of  your  theory 
of  money  as  a  power  in  itself,  rather  than  the  means  only 
by  which  power  is  exerted.  Money,  being  a  conventional 
arrangement,  is  controlled  by  lenders  and  borrowers.  When 
production  has  proceeded  as  far  as  it  can  without  a  crisis, 
loans  of  money  are  the  means  by  which  lenders  and  borrow- 
ers have  brought  it  to  that  stage :  prices  rise  as  the  produc- 
tion progresses,  and  in  consequence  of  it.  When  production 
falls  off,  because  it  has  arrived  at  that  stage  where  it  can 
progress  no  farther,  the  circulation  of  money,  through  wages 
and  profits,  falls  off  with  it,  and  prices  fall  in  consequence, 
whatever  may  be  the  actual  number  of  units  of  money  in  the 
country,  or  per  capita.  The  fall  is  the  necessary  result  of 
the  rise,  and  does  not  come  independently  of  the  previous 
rise.  Units  of  metallic  money  are  limited  by  the  containing 
metal,  and  units  of  paper  money  are  limited  in  number  by 
the  units  of  metal  in  the  reserve  of  the  issuing  bank,  both 
as  to  their  total  number  and  the  amount  of  circulation  which 
can  take  place  by  their  means.  The  only  perfect  limitation 
is  metallic.  If  two  barbarians  make  an  exchange  of  six 
horses  on  one  side  for  twelve  cows  on  the  other,  the  units  of 
valuation  for  each  horse  are  two,  and  for  each  cow,  one.  It 
is  a  question  of  proportion,  to  be  settled  as  the  condition 
precedent  to  an  exchange,  and  the  proportion  is  naturally 
and  necessarily  in  abstract  units :  there  is  no  other  mode  of 
stating  the  terms  of  the  proportion.     It  is  thus  stated,  and 


MONETARY   AND   INDUSTRIAL   FALLACIES.  117 

the  excharif^e  is  made  in  liiinnony  with  it.  This  is  an  ex- 
change by  the  aid  of  money  in  its  first  and  rudimentary 
stage.  Each  horse  is  one  unit  of  money  to  two  cows,  and 
two  cows  are  a  unit  of  money  to  one  horse.  Now  suppose 
a  species  of  shell,  of  a  beautiful  pattern,  to  be  discovered, 
scarce  enough  to  make  it  answer  the  purposes  of  money,  and 
to  be  brought  into  use,  and  marked  by  those  who  first  put 
it  in  circulation  to  signify  their  agreement  to  receive  it  as 
current  whenever  they  have  anything  to  exchange.  Had 
these  been  used  in  the  former  case,  the  owner  of  the  horses 
might  sell  them  to-day  for  twelve  shells,  and  to-morrow  he 
might  buy  with  them  the  twelve  cows.  The  principle  of 
proportion  and  of  computing  proportion  is  the  same  in  each 
case.  In  the  first  case  the  units  of  valuation  were  limited 
by  commodities  then  and  there  brought  together  and  ex- 
changed ;  in  the  second  case,  the  units  were  limited  by  com- 
modities to  which  conventional  value  was  given  by  tacit 
agreement.  Their  value  consisted  in  the  limitation  of  their 
number,  and  their  currency,  and  the  great  convenience  re- 
sulting from  their  use.  Now  the  introduction  of  gold  and 
silver  cannot  change  the  pi'inciple  of  the  second  method  of 
exchange.  Utility,  outside  of  money,  does  not  in  the  slight- 
est degree  affect  the  principle  of  the  exchange ;  neither  does 
the  introduction  of  bank-notes.  The  whole  science  of  the 
subject  has  been  buried  up  in  a  chaos  of  words  and  terms, 
which  only  serve,  as  long  as  they  are  in  the  way,  to  render 
the  establishment  of  a  true  science  of  money  impossible. 
My  friend  says  that  the  greatest  difficulty  to  be  encountered, 
at  first,  is  to  be  understood  at  all.  If  scientists  would  be 
logical  and  determine  fully  what  reply  they  ought  to  make 
in  their  own  minds  to  this  question,  —  Is  money  a  conven- 
tional system  for  the  purpose  of  making  all  the  exchanges 
needed  by  civilized  men  ;  or  has  it  value,  in  itself,  as  money, 
independently  of  any  convention,  either  express  or  under- 
stood ?  before  writing  a  word,  and  carry  out  the  answer, 
whatever  it  might  be,  to  its  proper  conclusions,  a  true  sci- 
ence could  be  established.  The  absurd  conclusions  to  which 
one  answer  would  carry  them,  and   the  sound  conclusions, 


118  MONETARY   AND   INDUSTRIAL  FALLACIES. 

because  supported  by  all  the  facts,  to  which  the  other  would 
carry  them,  would  establish  a  true  science  at  once.  The 
advantage  of  using  gold  and  silver  lies  in  the  fact  that  its 
units  are  limited  with  mathematical  accuracy  by  weight  all 
over  the  world,  and,  wherever  they  may  be  found,  belong  to 
sellers  who  have  received  them  in  exchange  for  commodities 
actually  sold  and  delivered  to  buyers  who  are  consumers, 
and  the  sellers  are  therefore  now  entitled  to  become  con- 
sumers themselves.  The  gold  in  banking  reserve  belongs 
to  such  sellers,  but  being  concentrated  in  a  reserve  which 
is  constantly  being  replenished  as  fast  as  it  is  exhausted, 
when  production  and  consumption  are  exactly  balanced,  and 
being,  even  when  production  is  constantly  gaining  upon 
consumption,  so  slowly  exhausted  by  reason  of  the  slight 
difference  between  the  two  streams  that  a  crisis  changes 
the  currents  long  before  the  reserve  can  be  exhausted,  the 
problem  is  :  to  make  the  two  currents  exactly  alike,  after 
loans  have  progressed  to  a  point  where  they  bear  a  cer- 
tain proportion  to  reserve,  in  all  banks.  Purchasing  power 
is  number  of  commodities  as  it  changes,  while  units  of 
money  remain  the  same  ;  and  price  is  number  of  units  of 
money  as  it  changes,  while  units  of  goods  I'emain  the  same. 
Treating  money,  which  is  but  a  series  of  valuing  units  in  a 
ratio,  and  which,  after  they  have  performed  their  function  of 
valuing,  perform  the  still  further  function  of  constituting 
one  side  of  the  equation  of  exchange,  as  a  real  commodity 
having  value  for  any  other  purpose  than  that  of  being  sub- 
stituted for  one  of  the  commodities  in  the  abstract,  is  the 
chief  source  of  all  the  difficulties  about  money. 

G.  B.  C.  It  seems  to  me  that  the  present  state  of  the 
bullion  market  sustains  your  doctrine,  that  gold  and  silver 
have  a  valuing  power  precisely  like  the  units  of  valuing 
power  in  bank  debt.  We  have  always  supposed  —  O.  P. 
E.  and  his  friends,  and  I,  and  my  friends  —  that  debt  is 
used  to  pay,  but  your  criticism  upon  that  word  and  upon  its 
correlative,  credit,  was  just,  in  my  opinion.  If  gold  coin 
is  equally  and  in  the  same  sense  commodity,  whether  paid 
out  as  money  or  sold  as  bullion,  why  have  not  prices  risen 


MONKTAKV   AND   INDUSTRIAL   FALLACIES.  119 

in  Engliind  seven  and  one  half  per  cent,  above  their  former 
level?  Why  has  not  gold  risen  and  silver  fallen  equally, 
in  France?  The  rates  between  the  two  kinds  of  bullion 
have  changed  fifteen  per  cent.  ;  silver  has  fallen  below 
gold  bullion,  all  over  the  world,  fifteen  per  cent.,  reckoned 
in  gold,  and  gold  has  risen  fifteen  per  cent,  above  silver, 
reckoned  in  silver,  or,  in  other  words,  each  has  changed 
its  relations  of  value,  as  reckoned  in  the  other  by  weight, 
fifteen  per  cent.,  which  means  that  gold  has  risen  above 
and  silver  fallen  below  the  former  par,  seven  and  one  half 
per  cent.  Suppose  all  the  world  were  to  refuse  free  coinage 
in  the  future  for  both  gold  and  silver,  using  them  for  sub- 
sidiary coinage  only,  and  granting  free  coinage  to  platinum. 
Would  the  unit  purchasing  power  of  gold  and  silver  fall 
to  the  slightest  extent  ?  Would  it  not  rather  tend  to  rise, 
while  the  value  of  each  bullion,  except  platinum,  reck- 
oned in  money,  would  fall  more  than  one  half  ?  Is  not, 
then,  equality  of  general  exchangeable  value  between  two 
pieces  of  bullion  of  equal  weight,  —  one  coined  and  the  other 
uncoined,  —  merely  a  coincidence,  as  N.  S.  B.  says?  Have 
not  O.  P.  E.  and  I  been  trying  to  make  a  distinction,  when, 
in  point  of  science,  there  is  no  difference?  Is  there,  viewed 
in  the  light  of  common  sense,  —  uncommon,  if  you  choose  to 
put  it  so,  —  as  much  distinction  between  units  of  bank-notes 
and  units  of  gold  in  their  effects,  so  far  as  they  are  used,  as 
between  the  Entity  and  Quiddity  of  the  schoolmen?  I  must 
confess  that  new  light  has  fallen  upon  my  eyes.  How  can 
debt  or  credit  circulate  any  more  than  faith,  hope,  or  charity, 
as  N.  S.  B.  asks  ? 

iV.  jS.  B.  When  the  discussion  began,  I  thought  C.  B.  C. 
altogether  unreasonable,  and  so  fixed  in  opinion  that  he 
could  not  be  moved.  I  now  see  where  the  difference  lies 
between  him  and  O.  P.  E.  Both  assert  the  same  doctrine 
as  the  foundation  of  their  reasoning ;  both  say  there  can  be 
no  overproduction.  O.  P.  E.  says  there  can  be  no  excess  of 
bank  credits,  and  C.  B.  C.  that  there  can  be  no  excess  of 
money,  whether  paper  or  metal.  O.  P.  E.  has  some  prac- 
tical sagacity,  which  makes  him  hesitate  in  carrying  out  his 


120  MONET  ART  AND  INDUSTRIAL  FALLACIES. 

doctrine,  and  he  is  therefore  very  hard  to  convince ;  but  C.  B. 
C.  now  perceives  that  the  doctrine,  carried  to  its  conchisions, 
leaves  liini  where  the  old  myth  says  it  left  King  Midas. 
There  is  truth  as  well  as  poetry  in  the  story,  which  is  in 
itself  a  demonstration  by  reductio  ad  absurdum. 

0.  S.  B.  I  have  been  listening  for  a  long  time,  and  as 
our  interview  is  about  to  close,  I  will  remark  that  there  seem 
to  be  five  demonstrations  to  which  the  attention  of  econo- 
mists ought  to  be  turned  in  the  United  States  at  this  time, 
in  view  of  the  unexampled  depression,  and  the  failure  of  the 
science,  as  now  taught,  to  explain  it,  for  all  its  explanations 
only  turn  the  popular  explanation,  which  is  only  confused, 
into  chaos.  I  understand  N.  S.  B.  and  his  friend  to  give  us 
the  following  demonstrations  :  — 

DEMONSTRATION   NO.    1. 

The  development  of  money  shows  it  to  be  a  series  of  valu- 
ing units,  whose  value,  like  that  of  all  units  in  a  ratio,  is  one 
of  proportion  by  numbers,  which,  if  placed  in  the  numerator 
and  remaining  stationary  in  point  of  number,  increases  di- 
rectly in  value  with  the  units  of  goods  in  the  denominator, 
and  gives  purchasing  power  or  value  of  money  in  exchange, 
as  reqkoned  in  units  of  goods,  the  quotient  being  a  unit  or 
units  of  goods ;  and  if  placed  in  the  denominator  and  made 
to  vary,  while  the  units  of  goods  in  the  numerator  remain 
unchanged,  gives  price ;  the  quotient  being  a  unit  or  units 
of  money.  They  say  that  units  of  goods  must  necessarily 
vary  somewhat,  but  the  variation  ought  to  be  confined  to 
them  as  nearly  as  possible,  while  keeping  the  units  of  money 
steady  in  point  of  number,  by  the  most  effective  method  of 
limitation,  and  for  this  purpose  it  is  essential  that  the  units 
do  not  increase  faster  than  the  units  of  goods  throughout  the 
commercial  world,  and  that  to  this  end  they  ought  to  be 
distributed  everywhere  in  proportion  to  the  distribution  of 
units  of  goods  ;  that  is  to  say,  commerce.  They  say  that  to 
distribute  them  in  proportion  to  the  production,  instead  of 
the  distribution  of  units  of  goods,  must  necessarily  lead  to 
confusion  and  blocking  of  the  exchanges  of  goods,  and  con- 


MONETARY  AND   INDUSTRIAL   FALLACIES.  121 

Btant  variation  in  the  units  of  money  distributed,  as  com- 
pared with  the  units  of  goods  distributed,  because  all  units 
of  money  paid  out  to  production  in  one  quarter,  in  excess  of 
production  in  another,  cannot  be  kept  out  of  market,  as  the 
units  of  goods  can  be  for  a  time,  so  far  as  the  exchanges  are 
not  ready  for  them,  because  the  excess  of  units  of  money 
thus  created  at  the  same  time  with  that  of  goods  follows 
the  goods  which  are  actually  distributed,  and,  by  raising 
prices,  deceives  those  who  are  ])roducing  the  excess ;  and 
the  merchants  who  buy  are  left  with  a  part  of  it  on  their 
hands,  and  are  thus  unconsciously  made  to  play  the  part  of 
speculators. 

DEMONSTRATION   NO.   2. 

After  development  in  a  rudimentary  state,  money  has 
further  developed  in  two  forms :  in  units  of  metallic  com- 
modity limited  by  the  metal,  and  in  units  of  bank-notes 
limited  by  convertibility  into  metal,  or,  if  non-convertible,  by 
designated  limits,  and  redemption  by  exchanges  and  drafts  on 
commercial  centres.  They  say  that  gold  and  silver  units  are 
the  most  perfect  forms  of  money  conceivable,  and  have  been 
growing  more  and  more  perfect  as  their  total  number  has 
increased, — the  ratio  of  increment  thus  becoming  less,  con- 
tinually, of  late  years,  because  commerce  has  increased  more 
rapidly. 

But  they  say  the  increase  of  banks  has  more  than  compen- 
sated for  this  loss  on  the  part  of  the  units  of  metal  as  com- 
pared with  units  of  merchandise,  by  "  economy  "  of  metal. 
This  latter  element  (economy)  they  say  is  of  itself  exceed- 
ingly variable,  and  threatens  with  the  extension  of  banks  to 
annihilate  the  unvarying  cliaracter  of  the  metallic  unit,  the 
demonstration  that  all  units  of  money  are  essentially  the 
same  necessarily  leading  to  the  corollaiy  that  in  order  to 
preserve  the  almost  perfect  valuing  function  which  metallic 
units  are  generally  admitted  to  possess,  all  the  conditions 
which  enable  them  to  maintain  it  must  at  some  point  or 
other  be  recalled.  This  general  corollary  may  be  resolved 
into  the  special  one,  that  as  bank  loans  to  a  merchant,  to 


122  MONETARY  AND   INDUSTRIAL   FALLACIES. 

purchase  sny  one  liundrcd  thousand  dollars'  worth  of  mer- 
chandise produced  and  still  held  in  first  hands  by  means  of 
bank  loans,  retain  the  one  hundred  thousand  dollars  for  use 
in  the  producing  market  until  the  merchandise  finds  consum- 
ers ;  to  stop  loans  universally  in  all  banks  after  a  certain 
portion  of  deposits  have  been  loaned,  is  really  to  stop  pro- 
ducing by  the  aid  of  bank  loans  then  and  there,  until  by 
bringing  the  units  of  gold  moving  in,  out  of,  and  into  the 
reserve,  in  harmony  with  the  distribution  and  consnmption 
rather  than  the  production  of  goods,  both  production  and 
prices  are  brought  to  average  by  carrying  back  to  the  banks 
the  redundant  units  of  circulating  gold  or  notes  (it  matters 
not  which),  or  by  retiring  through  checks  the  power  of  cir- 
culating money  in  the  reserve.  In  the  absence  of  clearing 
the  latter  is  a  payment  of  money  out  of  the  reserve  to  the 
buyer,  who  pays  it  to  the  seller,  who  returns  it  by  deposit- 
ing to  the  reserve :  clearing  by  the  aid  of  banks  saves  the 
handling  of  the  money. 

DEMONSTRATION   NO.   3. 

In  the  third  place,  it  being  shown  by  the  second  demon- 
stration that  all  units  of  money  paid  out  for  purposes  of 
production  are  carried  at  pleasure  into  the  distributing  as 
well  as  the  producing  market,  and  remain  there  until  the 
product  is  sold,  the  next  question  is  one  of  fact:  Does  over- 
production occur,  and,  by  occurring,  bring  on  commercial,  in- 
dustrial, and  banking  crises?  The  absolute  necessaries  which 
producers  have  to  offer  in  exchange,  after  satisfying  their 
own  wants,  may  be  assumed  as  at  least  equal  to  those  which 
are  relative.  The  producers  of  the  absolute  sell  all  their  sur- 
plus annually  ;  the  producei's  of  the  relative  carry  over  large 
stocks.  The  latter  are  carried  over  for  want  of  buyers ;  but 
there  would  be  buyers  if  there  were  producers.  Again,  over- 
stock naturally  falls  in  price,  as  compared  with  goods  which 
are  not  overstock.  It  has  been  shown  in  Demonstration  No. 
2  how  this  effect  may  be  postponed  for  a  time.  When  a 
crisis  comes  the  law  referred  to  asserts  itself,  as  it  would 
if  there  were  no  such  thing  as  localized  units  of  money  to 


MONETARY   AND   INDUSTRIAL   FALLACIES.  123 

disguise  it.  We  have  practical  proof  of  this  assertion  in  the 
fact  that  wheat  lias  not  fallen  since  1873,  but  iron  has  fallen 
more  than  one  half,  and  cloth,  furniture,  carriages,  city  and 
village  buildings  more  than  one  third,  by  the  falling  off  of 
wages  and  profits.  Still  again  :  had  one  third  of  the  labor- 
ers been  engaged  in  ])roducing  absolute  necessaries,  thus 
adding  to  the  product  of  the  latter,  while  at  the  same  time 
taking  equally  from  the  former,  there  could  not  have  been 
an  industrial  crisis.  If  there  had  been  no  industrial  crisis, 
it  would  have  been  because  no  laborers  were  turned  away. 
If  no  laborers  had  been  turned  away  it  would  have  been  be- 
cause there  was  no  overstock  of  the  product.  If  there  had 
been  no  overstock  of  the  product  it  would  have  been  because 
the  current  of  units  through  payments  would  have  been 
equal  to  the  current  through  loans  :  the  latter  would  have 
resulted  from  the  formei*.  This  equality  of  currents  in  num- 
ber of  units  is  precisely  what  N.  S.  B.  has  called  an  even 
ratio  of  reserve  to  debt.  This  is  what  Adam  Smith  called 
sound  banking  and  the  result  of  sound  investments.  A 
crisis,  therefore,  has  an  industrial,  a  commercial,  and  a  bank- 
ing side:  the  producers,  the  banks,  and  the  laborers  have 
acted  together,  and  may  be  economically  considered  as  part- 
ners with  separate  but  closely  allied  interests  in  the  results. 

0.  P.  E.  We  call  the  crisis  speculative,  because  we  do 
not  believe  in  such  a  thing  as  overproduction.  It  is  specu- 
lative pui'chases,  not  of  what  is  relatively  overproduced,  but 
kept  out  of  market  on  speculation,  whether  merchandise, 
stocks,  or  real  estate.  It  is  the  fall  or  the  recoil  of  prices 
which  constitutes  the  crisis ;  unwillingness  to  sell  at  the  re- 
duced prices,  and  sometimes  shrinkage  sufficient  to  annihi- 
late margins. 

0.  S.  B.  I  thought  so  when  I  had  taken  my  last  lesson  in 
political  economy,  and  I  thought  I  was  confirmed  in  that 
opinion  after  reading  your  work,  but  this  discussion  has  con- 
vinced me  of  my  error.  I  am  certain  we  have  been  the 
victims  of  fallacies  founded  on  supposed  facts  and  distinctions 
which  have  no  existence  save  in  our  opinions.  What  is 
speculation  ?  Is  it  not  buying  in  hopes  of  a  rise  exclusive  of 
ordinary  fair  profits  of  trade  ? 


124  MONETARY  AND   INDUSTRIAL  FALLACIES. 

0.  P.  E.  That  is  what  we  have  always  considered  it  to  be. 

0.  S.  B.  Be  it  so  ;  but  how  can  you  have  a  general  buy- 
ing of  all  the  relative  necessaries  of  life  sufficient  to  produce 
such  a  crisis  as  we  have  now,  unless  there  is  relative  over- 
production throughout  that  quarter  ?  It  is  impossible,  and  it 
is  equally  impossible  to  maintain  it  long  without  an  apparent 
rise  by  creating  an  expansion  of  prices  through  the  units  of 
money  which  pay  for  the  labor  and  material  invested  in  the 
product.  This  general  buying  on  credit,  as  we  have  usually 
called  it  (we  have  sometimes  called  it  speculation),  I  now 
perceive  to  be  merely  a  purchase  of  the  overstock  by  a  pay- 
ment of  monej'^  borrowed  from  banks,  which  makes  no  set- 
off of  bank  credits  or  debts,  because  while  it  retires  out  of 
circulation  the  money  borrowed  to  buy  the  raw  material 
and  the  wages  for  working  it  up,  it  puts  in  circulation  in  its 
place,  not  only  the  same  amount  of  money  which  the  raw 
material  and  work  cost,  but  large  sums  for  profits  beside. 
The  resulting  rise  of  prices  comes,  not  by  mercantile  pur- 
chases on  credit,  but  by  the  increased  volume  of  units  of 
money  put  in  circulation.  But  the  overstock  increases  very 
gradually:  moreover,  it  is  not  all  overstock,  for  we  sell 
largely  to  consumers,  and  if  one  is  a  speculator,  such  are  all. 
I  speak  now  on  behalf  of  the  mercantile  community  to  which 
bankers  may  in  a  certain  sense  be  considered  as  belonging, 
and  I  ask  whether  we  have  not  been  entirely  misled  by  such 
words  as  speculation,  commodity,  barter,  and  credits?  If 
the  community  of  merchants,  including  bankers  and  pro- 
ducers, have  accumulated  an  overstock  of  one  thousand  mill- 
ions, and  declai'ed  profits  on  sales  of  the  overstock  to  the 
amount  of  two  hundred  millions  (repeating  the  process  sev- 
eral times),  credited  them  up  in  the  shape  of  dividends  and 
mercantile  gains,  and  invested  the  same  in  the  building  of 
houses  and  warehouses,  the  erection  of  mills,  and  the  build- 
ing of  railroads,  because  they  supposed  the  dividends  and 
gains  to  be  fairly  earned,  does  the  word  speculation  convey 
a  correct  idea  of  the  process?  Is  it  not  rather  a  word  which 
entirely  conceals  it?  Surely  it  is  ;  and  the  real  process  is 
relative  overproduction.     Of  course  universal  overproduction 


MONETARY  AND   INDUSTRIAL  FALLACIES.  125 

is  impossible,  for  tliat  would  mean  universal  plenty  in  excess 
of  labor  ex])ended.  I  perceive  now  that  what  we  want  to 
accomplish  is  not  less  but  on  the  whole  more  production, 
by  producing  in  harmony,  so  as  to  have  harmony  of  ex- 
change, as  in  France.  We  must  have  a  new  political  econ- 
omy founded  on  facts.  We  do  not  desire  to  force  banks  to 
loan  less,  but  on  the  whole  more  ;  we  do  not  wish  to  curtail 
their  profits  or  those  of  the  producing  and  mercantile  com- 
munity at  large:  we  aim  rather  to  increase  them.  This  is 
the  third  demonstration  in  order,  which  I  furnish  out  of  this 
discussion,  and  now  comes 

DEMONSTRATION   NO.  4. 

The  fourth  demonstration  involves  the  question  of  banks. 
Are  banks  indispensable  to  the  laborers,  the  merchants,  the 
producers,  —  in  short,  to  all  the  people  of  the  United  States  ? 
As  the  result  of  this  discussion,  I  affirm  that  they  are.  In  a 
country  like  France,  where,  in  the  absence  of  banks,  com- 
merce has  distributed  so  large  an  amount  of  metal,  all  the 
money  required  can  be  had  in  metal  if  desired  :  the  supply 
is  ample.  By  the  use  of  banks.  Great  Britain  and  her  col- 
onies, and  the  United  States,  have  economized  metal  to  a  very 
large  amount.  To  abandon  that  economy  by  abandoning 
banks  would  more  than  double  the  metal  required  by  these 
countries,  and  produce  what  C.  B.  C.  would  call  an  enormous 
contraction.  It  would  have  a  depressing  influence  upon  pro- 
duction,—  in  short,  it  would  be  impossible  to  carry  out  such  a 
policy  suddenly.  It  would  require  a  long  time.  The  present 
uneven  distribution  of  metallic  material  must,  therefore,  be 
allowed  to  continue.  But  in  order  to  maintain  Smith's  law 
of  proportion  between  any  form  of  debt  used  as  money  and 
metal,  banks  are  indispensable.  No  matter  what  institution 
makes  the  loans  and  thus  creates  the  debt  by  means  of  which 
the  economy  is  effected,  that  institution  is  what  is  now  called 
a  bank.  If  government  issues  paper  for  such  a  purpose,  it 
must  do  it  as  a  bank.  It  can  issue  a  small  amount  to  take 
the  place  of  as  much  metallic  currency,  but  it  can  only  be 
small,  like  the   paper  issued  to  the  Bank  of  England  on 


126  MONETARY  AND   INDUSTRIAL  FALLACIES. 

government  debt.  Banks  and  bank  loans  have  created  the 
"  economy,"  and  by  them  alone  can  harmony  of  proportion 
between  economy  and  the  metal  economized  be  maintained. 
This  must  be  maintained,  as  Smith  has  pointed  out,  by  equal- 
izing the  current  which  commerce  draws  from  banks  with 
the  current  it  returns  to  them.  This  equalization  will  check 
the  slight  daily  increment  of  the  outgoing  current  slowly 
proceeding  up  to  a  crisis,  which  indicates  the  advance  of  pro- 
duction beyond  the  possibility  of  realizing  through  the  ex- 
changes. It  matters  not  whether  a  bank  be  one  of  issue  and 
deposit  loan,  or  deposit  loan  only :  an  economy  of  money  is 
effected  by  inc7'easing  the  circulation  of  money ^  and  all  extra 
circulation  of  money  over  and  above  immediate  consumers' 
exchanges  comes  through  loans.  After  the  invention  of 
units  of  shells  marked  by  the  issuers,  the  difference  between 
barter  and  money  exchange  was  in  the  fact  that  the  respect- 
ive owners  could  dispose  of  their  commodities  one  day  and 
on  some  other  day  buy,  not  any  pai'ticular  commodity,  but 
whatever  they  might  desire,  if  it  could  be  found,  thus  divid- 
ing the  real  exchange  into  two  parts,  and  adding  the  conven- 
ience of  allowing  the  seller  to  locate  his  exchange  upon  any 
commodity.  Should  one  person  discover  a  secret  place  where 
he  could  obtain  an  unusual  number  of  shells,  this  would  cre- 
ate a  redundancy  and  local  rise  of  prices,  because  the  units 
of  money  would  be  in  excess  of  commodities.  If  one  half 
the  members  of  the  community  deposited  with  one  man,  he 
could  loan  some  of  the  shells  beside  suppljung  all  the  calls 
of  depositors.  The  borrowers  could  only  pay  him  by  means 
of  increased  production  :  they  could  not  by  any  possibility 
pay  without  it,  except  by  way  of  anticipating  ordinary  in- 
come through  the  old  rate  of  production.  This  would  create 
a  redundancy  of  production  in  that  quarter  where  the  loans 
were  used,  which  might  create  a  crisis  if  allowed  to  proceed 
without  limit.  The  same  principle  underlies  the  use  of  all 
money,  even  gold  and  silver. 


MONETARY   AND   INDUSTRIAL   FALLACIES.  127 


DEMONSTRATION  NO.  5. 
The  fifth  demonstration  miiy  be  considered  rather  as  a  cor- 
ollary from  the  foregoing.  In  view  of  the  unit  character 
of  all  money,  the  present  plan  of  coining  silver  in  the  United 
States  appears  absurd.  No  possible  advantage  can  accrue  to 
laborers  and  producers  by  attempting  it,  and  a  partial  re- 
monetization  cannot  drive  out  gold,  while  general  remoneti- 
zation  cannot  be  brought  about  until  convertibility  has  been 
established.  S.  L.  and  C.  B.  C.  will  pay  the  same  taxes, 
whether  silver  be  remonetized  or  not.  The  only  important 
question  in  relation  to  it  is  that  of  the  ratio  to  be  agreed 
upon  for  general  recoinage  hereafter.  That  the  unit  theory 
of  money  is  not  probably  but  certainly  true  is  proved  by  the 
mathematical  accuracy  with  which  gold  and  silver  bullion 
are  valued  in  each  other.  If  the  ratio  of  gold  to  silver  is  1 
to  18  in  the  bullion  market,  then,  taking  masses  of  each 
bullion  of  equal  weight,  gold  must  be  multiplied  and  silver 
divided  by  18  to  find  the  value  of  the  units  stated  in  each 
other.  The  relation  of  the  masses  is  mathematical  because 
it  is  exact ;  it  is  one  of  weight  of  mass  only.  The  value  is 
therefore  mathematical  and  abstract.  But  if  gold  values 
silver,  and  silver  gold,  mathematically  and  abstractly,  — 
each  rising  in  value  as  it  loses  in  weight,  and  falling  in  value 
as  it  gains  in  weight,  with  mathematical  accuracy,  how  can 
the  value  of  gold  reckoned  in  silver,  or  that  of  silver  reck- 
oned in  gold,  be  stated  in  any  other  than  abstract  units  ; 
and,  in  point  of  fact,  is  it  not  so  stated  ?  If  silver  and  gold 
are  both  "  commodities  "  bartered  for  each  other,  and  their 
relation  is  abstract,  the  relation  of  each  of  them  to  all  other 
commodities  must  necessarily  be  of  the  same  character.  In 
other  words  it  is  perfectly,  and  not  imiJerfectly,  conventional. 
That  money  values  as  an  abstract  unit  and  hence  that  all 
money  in  equations  of  exchange  between  buyers  and  sellers 
is  in  substance  the  same,  is  mathematically  certain  ;  the  real 
difficulty  my  friend  and  I  have  to  encounter  is  to  make  peo- 
ple perceive  the  force  of  the  demonstration  practically  as 
well  as  abstractly,  on  account  of  the  prevailing  ideas  em- 


128  MONETARY   AND   INDUSTRIAL  FALLACIKS. 

bedded,   as   it  were,   in    language  itself.     Banks,  as  Adam 
Smith  testified,  stimulate  production  :  the  time  has  arrived 
when  a  proper  limitation  must  be  kept  upon  that  stimulus, 
not  to  destroy  it,  but  to  perfect  it,  and  prevent  it  from  being 
any  longer  the  source  of  so  much  injury  to  the  whole  commu- 
nity, bankers  included.     That  the  true  theory  of  money  will 
be  learned  by  and  by  seems  probable,  because  the  thinking 
world  is  at  work  upon  all  social  questions,  and  must  discover 
that  the  relative  barter  rates  between  gold  and  silver,  having 
changed  fifteen  per  cent.,  have  neither  taken  from  the  pur- 
chasing power  of  silver  nor  added  to  that  of  gold,  and  possibly 
never  may.    Silver,  as  the  raw  material  to  make  metallic  units 
of  money,  has  fallen,  and  gold  as  raw  material  has  risen;  but 
the  units  themselves  have  neither  fallen  nor  risen,  because 
they  can  only  fall  or  rise  with  the  ratio  of  coinage  to  the  total 
number  of  units  already  coined,  —  a  ratio  slight  compared 
with  the  fall  in  the  raw  material  of  silver  bullion,  —  while 
the  fall  itself  will  in  time  be  balanced  by  increase  in  the 
units  of  merchandise  in  commerce,  decrease  in  silver  product, 
and  slow  redistribution  of  the  loss  in  purchasing  power  of 
the  silver  unit  among  all  buyers  and  sellers.     The  present 
state  of  the  bullion  market  also  demonstrates  N.  S.  B.'s  the- 
ory of  overproduction.    Why  cannot  surplus  silver  be  shipped 
to  China  (admitting  it  could  be  coined  fast  enough)  and  in- 
vested in  merchandise?     Because  there  is  a  limit  to  Chinese 
production,  and  the  silver  would  soon  be  redundant  locally 
before  it  could  be  distributed,  and  prices  would  rise,  not  to 
the  same  extent,  but  for  the  same  reason  that  they  rose  in 
Germany,  and  in  Ancient  Rome,  where  the  price  of  a  rare 
fish  equaled  that  of  an  ox,  and  a  fortune  was  lavished  upon 
a  single  supper.     Again,  if  trade  dollars  could  be  shipped  in 
any  number  without  raising  prices  locally  in  China,  the  in- 
creased importations  would  not  be  in  harmony  with  the  pro- 
duction of  the  United  States,  and  prices  of  imported  Chinese 
merchandise  would  fall.     The  market  for  silver  has  fallen  off 
through  production  having  been  made  redundant  by  demon- 
etization.    Inharmonious  production  of  any  kind  leads  to  a 
crisis.    When  the  true  theory  of  money  is  learned,  and  bank 


I 


MONETARY   AND   INDUSTRIAL   FALLACIES.  129 

loans  brought  in  harmony  with  tlie  distribution  of  nietaUic 
money,  if  it  be  possible  to  accomplish  it,  a  serious  question 
will  arise,  whether  the  units  of  merchandise  in  commerce  are 
not  increasing  in  excess  of  the  units  of  coined  metal :  a  gen- 
eral monetization  of  both  metals  will  then  be  demanded  by 
the  wants  of  commerce  if  the  ratio  of  the  units  of  merchan- 
dise to  those  of  money  increase  rapidly  in  excess  of  the  ratio 
of  units  of  money  to  units  of  merchandise  in  equations  of  ex- 
change. But  this  change  would  unquestionably  be  so  slow 
that  the  loss  of  purchasing  power  would  be  but  nominal,  be- 
cause, being  slowly,  it  would  be  evenly  distributed.  The 
change,  however,  might  have  a  depressing  efTect  upon  pro- 
duction. 

If  the  nature  of  money  as  a  conventional  system  had  been 
fully  recognized  (I  will  not  say  by  bankers,  but  by  those 
who  have  written  about  it),  and  had  it  been  carried  to  its 
logical  conclusions,  it  ought  to  have  appeared  that  all  money 
must  necessarily  be  in  substance  the  same.  It  cannot  be  a 
conventional  system  in  any  other  way  than  as  a  series  of 
units  limited  in  some  mode  ;  and  if  bank  loans  expand  up 
to  the  time  of  a  banking  crisis,  and  then,  in  spite  of  all  the 
efforts  of  banks  to  the  contrary,  contract  until  the  elements 
of  another  crisis  begin  to  form,  it  is  certain  that  money  is 
not  the  cause,  but,  the  forces  behind  money.  Are  bank 
loans  ever  made  to  producers  of 'wheat?  If  made,  would 
they  materially  increase  the  crop  ?  Would  they  not  have 
an  injurious,  if  any  effect  at  all,  upon  the  total  produced, 
by  diminishing  instead  of  increasing  it  ?  Do  loans  to  the 
producer  of  wheat  on  mortgage  increase  the  total  crop  in  the 
slightest?     They  surely  have  no  material  effect. 

On  the  contrary,  three  fourths  of  all  bank  loans  are  em- 
ployed in  the  production  of  relative  necessaries  ;  in  the  ac- 
cessories, rather  than  the  principal  means  of  living.  It  is 
the  increase  of  these  accessories  in  accordance  with  the  laws 
which  limit  the  power  of  men  to  produce  in  general,  and 
subject  to  the  inexorable  condition  of  working  in  harmony, 
that  creates  wealth. 

The  reason  why  a  regulated  reserve  is  essential  is  because 


130  MONETARY   AND   INDUSTRIAL   FALLACIES. 

the  reserve  is  the  money  of  commerce  :  it  is  not  a  sum  of 
gold  purchased  by  bankers  to  pay  their  debts  with,  or  sup- 
ply the  wants  of  retail  as  distinguished  from  wholesale  trade. 
If  the  total  of  bank  loans  were  never  allowed  to  exceed  four 
fifths  of  the  total  of  deposits,  gold  and  bank-notes  would 
circulate  together.  This  would,  of  itself,  regulate  the  circu- 
lation and  redemption  of  bank-notes.  But  this  is  a  difficult, 
perhaps  impossible,  regulation.  Could  it  be,  and  were  it  ac- 
complished, however,  it  would  make  all  bankers  conserva- 
tive, instead  of  involving  the  conservative  in  bankruptcy 
with  those  who  are  not  so,  because  all  banks  are  in  true 
science  to  be  I'egarded  as  one.  In  production  and  com- 
merce the  United  States  are  one  nation  :  they  ought  to  be 
one  in  the  monetary  machinery  which  moves  production  and 
commei'ce.  So  long  as  banks  issue  notes,  it  is  generally 
conceded  by  those  who  think  at  all  upon  such  subjects  that 
the  unity  of  the  bank-note,  now  purchased  at  considerable 
expense,  ought  to  be  continued,  instead  of  wantonly  aban- 
doned. But  the  I'egulation  of  bank-notes  really  sinks  into 
insignificance  compared  with  that  of  deposit-loan  banking. 
The  latter  may  be  partially  regulated  by  retaining  the 
national  banks  which  now  bold  more  tlian  half  the  com- 
mercial deposits  of  the  country.  These  banks  may  be  re- 
quired to  keep  their  coin  in  definite  ratio  to  notes  at  com- 
mercial centres,  allowing  the  coin  to  count  as  part  of  the 
collateral  security  for  redemption  of  notes.  This  would  be 
the  first  step  towards  regulated  reserve  of  any  kind,  and  a 
saving  to  the  banks.  This  accomplished,  the  important  step 
is  to  make  scientists  themselves  learn  what  deposit  banking 
really  is.  This  they  can  hardly  do  until  they  have  fully 
learned  what  money  is.  To  lose  the  unity  of  the  bank-note 
at  this  time,  and  with  it  the  possibility  of  assimilating  our 
currency  as  nearly  as  may  be  in  point  of  steadiness  to  that 
of  France,  where  metal  is  but  slightly  economized,  would  be 
a  great  misfortune  to  the  laborers,  the  bankers,  the  pro- 
ducers, and  merchants  of  the  United  States.  Properly 
regulated  banks  of  any  kind  ai-e  a  great  stimulus  to  pro- 
duction, as  Adam  Smith  —  the  most  competent  witness  in 


MONETARY  AND   INDUSTRIAL   FALLACIES.  131 

view  of  his  own  powers  of  observation  and  the  recent  intro- 
duction of  bank-notes  in  the  place  of  three  fourths  of  tlie 
previous  metallic  currency  of  Scotland  —  testified.  Money, 
being  a  conventional  system,  avails  only  when  used  ;  the  ex- 
changes of  consumers'  markets,  aside  from  loans,  constitute 
its  ordinary,  those  arising  from  loans  its  extraordinary  use. 
The  system  which  sustains  the  largest  volume  of  loans  — 
that  which  has  the  greatest  number  of  units  of  debt  due  to 
lenders  —  is  that  which  sustains  the  greatest  volume  of  pro- 
duction. A  railroad  is  largely  a  product  of  bank  loans. 
The  laborers  who  make  the  iron,  the  road-bed,  and  the  roll- 
ing stock  are  paid  bj'^  bank  loans,  and  what  bank  loans  fail 
to  accomplish  is  accomplished  by  loans  made  by  bank  stock- 
holders out  of  dividends  from  profits  other  than  those  arising 
from  sales  for  cash,  and  out  of  like  profits  on  the  manufacture 
of  iron,  and  on  sales  of  other  merchandise,  by  those  who  are 
not  bank  stockholders.  If  writers  and  bankers  can  never  be 
made  to  learn  that  the  question  is  one  of  loans  only,  and  not 
of  the  banks  and  persons  who  make  the  loans,  and  the  kind 
of  money  in  which  they  are  made,  it  would  be  well  for  the 
United  States  to  fall  back  slowly  upon  a  currency  like  that 
of  France,  inviting  the  commercial  world  to  monetize  silver 
and  gold  equally,  and  perhaps  to  monetize  platinum  at 
gradually  increasing  ratios  of  value  to  be  determined  by  suc- 
cess in  the  increase  of  its  production  and  distribution,  or 
the  contrary.  ]\Ietal  is  abundant  enough  ;  that  is  proved 
by  the  fact  that  the  only  objection  to  silver  is  that  it  is  too 
abundant,  because  it  cannot  be  used  as  metallic  commodity, 
but  only  as  a  series  of  valuing  and  paying  units,  and  that 
purchasing  power  depends  entirely  upon  the  number  of  units 
which  can  be  made  of  its  mass,  in  harmony  with  the  mass  of 
gold.  If  gold  and  silver  were  everywhere  money,  each  would 
have  half  the  total  number  of  units.  The  question,  there- 
fore, is  a  mathematical  one.  The  whole  mass  of  silver  must 
in  this  case  be  divided  into  the  same  number  of  units  as  the 
whole  mass  of  gold,  or  copper,  if  there  were  no  gold,  and 
copper  were  used  for  want  of  it.  Three  fourths  of  the  mass 
of  silver  would  be  annihilated  at  once  by  a  vote  of  the  com- 


132  MONETARY  AND   INDUSTRIAL   FALLACIES. 

mercial  world,  and  its  whole  value  carried  over  to  the  re- 
maining fourth,  if  it  were  possible  to  maintain  it.     To  do 
this  is  mathematically  impossible,  because  the  whole  ques- 
tion resolves  itself  into  abstract  units.     It  is  impossible  to 
change  the  quantity  of  metal  going  into  arts  and  manufact- 
ures as  commodity,  and  it  is  equally  impossible  to  change 
that  going  into  coin.     To  reduce   the  weight  of  silver  coin 
would  only  add  to  the  number  of  units  ;  and  the  purchasing 
power  of  valuing  units,  as  a  whole,  cannot  be  increased  by 
adding  to  their  number  throughout  the  commercial  world. 
Upon  this  principle  units  given  and  taken  in  exchange,  lim- 
ited by  bank-notes  convertible  into  metal,  are  in  true  science 
money  as  well  as  coin  itself.    It  is  not  bank-notes,  bank  debt, 
or  bank  credit  which  is  given  in  exchange  for  commodities, 
but  units  of  money  evidenced  by  bank  debt  and  limited  by 
liability  and  convertibility.    When  the  true  nature  of  money 
is  understood,  the  supposed  insufficiency  of  metallic  supply 
will  seem  absurd  while  silver  is  rejected   by  reason  of   its 
bulk.     It  is  not  the  insufficiency  of  metallic  supply  in  the 
abstract,  but  relatively,  which  makes  it  impossible  for  the 
United  States  to  adopt  a  metallic  currency  exclusively.     If 
adopted  at  all,  it  must  be  gradually,  because  the  mathemat- 
ical necessity  of  using  metallic  commodity  in  the  shape  of 
units  of  money,  and  not  as  ordinary  metallic  commodity,  for- 
bids it.    There  is  the  same  mathematical  impossibihty  of  mak- 
ing the  exchanges  of  commerce  with  what  are  called  debts 
and  credits,  or  by  set-offs.     Even  if  bills  of  exchange  and 
promissory  notes  were  employed,  they  would  be  exchanged 
in  their  character  of  valuing  and  paying  units.     Any  other 
exchange  is  impossijale,  because  in  all  exchanges  units  of 
value  in  commodities  on  one  side  constitute  the  first  member 
of  the  equation,  of  which  the  second  is  found  in  the  units  of 
conventional  value  in  money  on  the  other,  while  the  purchase 
is  completed  by  reversing  the  two  sides  of  the  equation  and 
making  the  units  change  ownership.     Ten  units  of  wheat 
sold  to-day  in  market,  and  measured  by  buyer  and  seller,  are 
given  in  exchange  for  ten  units  of  money  already  measured, 
in  the  case  of  bank-notes  and  coin  :  the  units  of  the  latter 


MONETARY  AND   INDUSTRLVL   FALLACIES.  133 

have  been  measured  before,  and  need  only  verification  ;  the 
units  of  the  former  must  be  measured  at  every  purchase,  and 
are,  until  measured,  uncertain  in  number.  In  all  cases,  how- 
ever, the  relation  is  one  of  units  to  units,  and  it  is  mathe- 
matically impossible  for  valuation  to  be  made  otherwise. 
These  are  the  five  leading  demonstrations  furnished  by  this 
debate  on  the  side  of  N.  S.  I).  It  is  time  to  adjourn  unless 
some  questions  remain  to  be  asked. 

(7.  B.  C.  I  would  ask  N.  S.  B.  to  explain  why,  when  we 
have  such  large  surplus  crops,  which  we  are  sending  abroad, 
while  there  is  an  overstock  of  relative  necessaries,  as  he  says, 
and  while,  as  I  know,  laborers  like  S.  L.  are  nearly  starving 
for  want  of  work,  which  nothing  but  money  can  pay  for,  he 
can  insist  that  money  is  not  scarce,  while  everything  else  is 
plenty.  When  everything  is  so  abundant,  why  should  there 
be  so  much  suffering,  unless  for  want  of  money  to  pay  labor? 
The  banks  have  heretofore  furnished  abundance.  Why  do 
thev  not  now  ? 

N.  S.  B.  What  you  call,  and  what  is  generally  known 
by  the  name  of  scarcity  of  money,  if  carefully  examined,  will 
lead  you  to  a  true  knowledge  of  the  causes  of  the  present 
distress.  A  very  large  part  of  the  production  outside  of  ag- 
riculture is  sustained  by  bank  loans.  Were  there  no  banks 
it  would  be  sustained  entirely  by  loans  from  capitalists,  who 
could  loan  only  as  fast  as  money  already  out  on  loan  would 
return  to  their  hands  out  of  loan.  In  the  United  States  and 
Great  Britain  the  capitalists  who,  in  the  absence  of  banks, 
would  make  the  loans,  are  now  depositors  in  banks  to  a  large 
extent.  Notwithstanding  this  fact,  they  loan  as  much  as  they 
could  do  in  the  absence  of  banks,  and  not  only  so,  but  they 
loan  in  excess  of  that  amount,  because  dividends  are  declared 
out  of  profits  on  sales  of  goods  which  have  not  only  not  yet 
found,  but  for  a  long  time  will  not  find,  consumers.  Add  to 
all  the  loans  which  can  be  made  in  the  absence  of  banks  the 
loans  which  banks  make,  and  to  these  the  additional  loans 
which  individuals  are  enabled  to  make  on  account  of  wages 
and  profits  received  on  sales  of  products  of  labor  outside  of 
cash  markets  by  the  aid  of  money  borrowed  from  banks,  and 


134  MONETARY  AND   INDUSTRLAX  FALLACIES. 

we  have  an  addition  to  all  loans  which  can  be  made  in  the 
absence  of  banks,  a  vast  total.  The  extra  loans  which  can 
be  made  and  maintained  with  banks  of  issue  in  the  absence 
of  all  deposit  banking  are  trifling  in  volume  compared  with 
those  which  are  made  and  maintained  under  deposit-loan 
banking,  even  if  the  only  money  in  use  be  gold  and  silver. 
If  Adam  Smith's  opinion,  that  banks  of  issue  ought  to  keep 
the  outgoing  current  of  loans  and  the  return  current  of  pay- 
ments nearly  equal  at  short  averages  in  order  to  have  sound 
banking,  is  correct,  it  is  still  more  essential  to  equalize  the 
outgoing  current  of  ordinary  bank  loans  under  deposit-loan 
banking  with  the  return  current  of  payments.  The  principle 
is  the  same  in  each  case,  but  most  important  in  its  applica- 
tion to  the  latter  kind  of  banking.  Abundance  of  money 
means  abundance  of  loans,  and  scarcity  of  money  scarcity  of 
loans  ;  but  banks  do  not  make  either  money  or  loans  scarce 
by  any  means,  because  they  not  only  loan  all  they  can  to 
real  producers  who  borrow  to  sell  as  well  as  produce,  but 
they  loan  so  much  that  the  ability  of  their  customers  to  bor- 
row is  cut  off  in  many  cases  by  bankruptcy. 

When  a  crisis  sets  in,  banks  as  well  as  borrowers  are  pow- 
erless in  making  money  either  scarce  or  abundant.  Scarcity 
of  money  merely  means  that  they  cannot  loan  as  they  did 
when  production  and  prices  were  in  the  ascendant.  They 
are  compelled,  it  is  ti'ue,  to  stand  guard,  as  it  were,  in  respect 
to  some  loans.  An  overloaded  producer  may  want  to  borrow 
to  hold  overstock  and  stave  off  bankruptcy.  The  real  mean- 
ing of  scarcity  of  money  is  that  a  crisis  in  production  has 
rendered  the  producing  and  mercantile  community  powerless 
either  to  produce  or  hold  -more  overstock.  The  real  call  for 
loans  is  mostly  from  those  who  have  overstock  and  by  re- 
newing loans  want  to  hold  it  as  long  as  they  can,  in  order 
to  take  their  chances  of  avoiding  bankruptcy.  In  this  sense 
money  is  scarce.  The  correct  meaning  of  the  expression  is, 
not  that  the  mere  units  of  money  are  scarce,  but  producers 
are  unable  to  produce  any  more  until  they  find  a  market, 
and  hence  there  are  few  loans,  and  banking  reserve  increases. 
It  would  be  more  correct  to  say  that  the  ability  to  use  money 


MONETARY   AND  INDUSTRIAL   FALLACIES.  135 

in  further  production,  and  hence  to  borrow  money  to  pay 
labor,  is  scarce,  and  therefore  labor,  has  comparatively  little 
money  to  pay,  and  much  less  than  it  formerly  had.  It  is 
"hard  times"  with  labor,  therefore,  as  well  as  capital,  and 
the  "  hard  times"  extend  to  the  whole  community,  most  of 
the  active  members  of  which  are  either  producers,  laborers, 
or  merchants. 

One  of  the  greatest  sources  of  loss  is  to  those  who  hold  the 
overstock,  and  suffer  from  what  is  called  shrinkage.  Their 
overstock,  together  with  the  circulation  of  money,  shrinks  ; 
their  debts  do  not  shrink.  The  railroad  which  cost  tliirty 
thousand  dollars  per  mile,  if  it  could  have  been  built  under 
steady  prices,  would  have  cost  only  two  thirds  of  that 
amount.  The  cloth  sold  at  auction  at  five  cents  per  yardj 
which  cost  eight,  would  have  been  produced  and  sold  at  six. 
The  municipal  improvements  would  not  have  been  made  at 
the  time  they  were  made,  and  when,  if  ever  made,  would 
have  cost  only  half  the  amount  actually  expended.  What 
makes  the  crisis  is  the  excess  of  debt  incurred  when  prices 
were  high.  The  high  prices  arose  from  overproduction,  in 
which  the  whole  country  was  engaged,  except  the  producer 
of  absolute  necessaries.  Neither  banks,  producers,  laborers, 
or  merchants  are  to  be  blamed.  The  only  remedy,  so  far 
as  there  can  be  remedy,  is  a  reserve  like  that  spoken  of  by 
Adam  Smith. 

0.  S.  B.  Does  the  word  overproduction  convey  your 
meaning  exactly,  Mr.  N.  S.  B.  ? 

N.  S.  B.  It  does  not.  I  suppose  it  can  hardly  yet  be 
considered  as  belonging  to  the  vocabulary  of  the  science  of 
production  and  exchange.  It  is  a  compound  whicli,  in  all 
its  implications,  is  directly  opposed  to  the  opinions  of  all  the 
writers  whose  works  are  standard  authorities  to-day.  I  do 
not,  by  using  the  word,  mean  to  imply  that  men  can  be  too 
industrious,  or  devote  themselves  to  business  of  any  kind 
with  too  much  energy.  I  afiirm  that  the  foundation  of  civ- 
ilization is  commerce :  commerce,  as  a  whole,  is  the  exchange 
of  the  merchandise  or  commodities  which  millions  of  people 
are  making  with  each  other,  and,  in  order  to  make  them, 


136  MONETARY   AND   INDUSTRIAL   FALLACIES. 

they  must  be  continually  producing.  If,  after  the  products 
of  one  year  are  disposed  of  by  one  half  of  the  total  number 
of  producers,  the  remaining  half  have  a  surplus  left,  it  is 
certain  that  there  is  a  want  of  harmony  in  production. 
Harmony  of  exchange  there  necessarily  must  be,  because  a 
surplus  of  the  kind  mentioned  cannot  be  exchanged ;  there 
is  nobody  who  is  able  to  take  it  and  give  something  else  in 
exchange  for  it.  This  surplus  is  sometimes  called  a  glut  of 
one  or  more  commodities.  It  is  so  called  by  M.  J.  B.  Say. 
The  mistake  on  the  part  of  M.  Say  and  his  followers  is  in 
limiting  the  glut  to  a  few  commodities :  it  extends  to  a  very 
large  portion  of  the  grand  total.  The  mischief  is,  not  that 
people  have  been  too  industrious:  they  have  paid  for  more 
labor,  in  the  production  of  a  large  number  of  commodities, 
than  they  can  sell  in  the  shape  of  commodities.  They  have 
done  this  largely  with  borrowed  money,  at  very  high  nom- 
inal prices  for  labor  and  material,  and  not  only  nominal,  but 
in  the  end,  real,  for  them,  because  debts  do  not  shrink. 
Overproduction  is  always  very  costly.  For  a  time  the  prices 
of  the  overproduced  article,  instead  of  apparently  falling  at 
the  same  time  they  are  in  reality  falling,  apparently  rise  for 
a  time,  while  overproduction  is  going  on,  in  consequence  of 
the  free  expenditure  of  money  paid  labor  during  that  period  ; 
and  when  overproduction  has  reached  its  limits,  and  labor 
has  less  money,  and  capital  less  profits,  the  real  fall  in 
value  of  the  overproduced  articles,  hitherto  concealed  in  ris- 
ing prices,  is  made  apparent.  The  total  production  has  been 
large,  and  granaries  may  also  have  been  bursting.  If  pro- 
ductive energy  everywhere  were  not  great,  overproduction  in 
so  large  a  part  of  the  field  could  not  have  been  maintained. 
A  rich  nation  must  necessarily  have  great  productive  pow- 
ers, but  its  producers  must  work  in  harmony.  The  United 
States  and  Great  Britain  are  virtually  one  nation  in  respect 
to  trade  and  the  movement  of  the  productive  forces.  Bank 
expansion  and  the  expansion  of  production  and  credit  move 
together  in  both  countries,  and  to  a  great  extent  through- 
out the  commercial  world.  The  expansion  and  collapse  in 
Germany,  on  a  grand  scale,  arose  from  national  and  inter- 


MONETARY   AND  INDUSTRIAL   FALLACIES.  137 

national  causes  of  a  ppculiar  kind,  and  the  collapse  there 
was  not  coincident  with  that  of  Great  Britain  and  the 
United  States.  However  abundant  harvests  may  be,  it  is 
enough  to  create  "  hard  times  "  to  bankrupt  a  considerable 
part  of  the  producing  and  mercantile,  and  discharge  a  por- 
tion of  the  industrial  community.  It  is  a  great  mistake  to 
suppose,  however,  that  in  any  true  economic  sense  there  is 
a  surplus  of  labor.  There  is  not  too  much  labor.  Labor 
is  strong,  but,  like  Polyphemus  in  the  fable,  blind.  We  are 
destroying  forests  to  build  temporary  houses,  fences,  and 
barns.  Our  country  roads  are  bad,  our  city  and  town  roads 
and  avenues  magnificent.  There  is  misdirected  labor  every- 
where. Our  town  population  is  too  large,  and  to  maintain 
the  proper  balance  of  production  we  have  not  cultivated 
land  enough  to  supply  those  wlio  are  producing  the  rela- 
tive necessaries  of  life  for  us  in  the  United  States,  in  Great 
Britain,  France,  and  elsewhere.  Railroads  have  changed  the 
face  of  the  world,  but  we  must  not  allow  so  many  to  be 
built  through  forests  at  the  cost  of  bankruptcy  for  those 
who  build.  Population  and  local  capital  must  meet  the 
builders  half  way ;  and,  to  enforce  this  rule,  we  must  regu- 
late the  great  magazine  of  production  on  credit,  — bank  loans. 
There  would  certainly  be  no  essential  want  of  harmony  of 
production  were  there  no  loans :  it  is  equally  certain  from 
this  discussion  that  all  loans  are  made  in  money,  and  that 
by  means  of  banks  a  very  large  volume  of  loans  of  money  is 
maintained  by  the  consolidation  of  the  money  reservea  of  a 
large  part  of  the  producing  and  commercial  classes,  together 
with  those  of  capitalists,  in  banks.  It  is  giving  money  an 
additional  use  or  circulation — whichever  you  choose  to  call 
it — over  and  above  the  use  which  could  by  any  possibility 
be  made  of  it  in  the  absence  of  such  consolidation,  besides 
the  additional  use  these  classes  of  persons  give  it  themselves 
in  consequence  of  deposit  loans.  I  fear  there  will  be  no  rem- 
edy until  the  nature  of  money  is  better  understood.  O.  P.  E 
thinks  it  is  not  money  that  banks  loan,  or,  as  his  phrase  is, 
deal  in,  and  that  the  credit  is  only  used  in  some  manner  — 
he  cannot  explain  how  —  in  the  equations  of  payment.     He 


138  MONETARY   AND  INDUSTRIAL  FALLACIES. 

calls  it  a  set-off.  I  have  heard  of  a  plea  of  set-off,  and 
understand  how  two  persons  dealing  together  pay  only 
balances  in  cash,  but  I  am  unable  to  understand  how  I  can 
pay  by  set-off  when  I  buy  of  a  merchant  with  whom  I  never 
had  any  credit  in  my  life,  when  I  pay  him  by  check.  I  can 
understand,  also,  how  banks  are  mutually  charged  and  cred- 
ited by  what  is  called  clearing.  This  you  may  call  set-off; 
but  I  cannot  understand  how  there  can  be  a  set-off  between 
buyers  and  sellers,  when  bank  checks  are  used,  any  more 
than  when  gold  is  used.  It  is,  in  fact,  utterly  impossible  ; 
because  if  I  have  dealings  with  any  one  we  make  our  own 
set-offs,  whether  we  use  checks,  bank-notes,  or  coin.  It  is 
mathematically  certain  that  the  equations  of  exchange  are 
alike.  Is  not  the  set-off,  then,  something  which  occurs  only 
between  baidvs  in  clearing,  to  save  handling  the  money  in 
the  reserve  ? 

0.  P.  E.  That  is  all  that  was  ever  claimed  for  set-off, 
and,  therefore,  as  I  said  before,  there  is  no  essential  difference 
between  payments  by  checks  and  payments  by  bank-notes. 
But,  before  adjourning,  I  would  like  to  hear  from  N.  S.  B. 
a  plainer  and  clearer  statement  of  his  theory  of  money.  I 
am  unable  yet  to  understand  how  he  eliminates  intrinsic 
value  from  gold  and  silver. 

N.  S.  B.  I  have  at  last  something  like  order  out  of  your 
chaos  in  respect  to  bank-notes  and  bank  credits,  and  I  will 
now  give  a  brief  answer  to  yoxxr  question,  which  I  think  you 
will  understand.  I  have  not  attempted  to  eliminate  utility 
and  limitation  of  supply  and  the  real  value  which  results 
from  them,  from  the  metal  of  gold  and  silver  coin  in  metal- 
lic commodities,  and  shall  not,  while  I  have  my  senses. 
What  I  do  say  in  respect  to  money  of  all  kinds  is,  that  it 
is  as  money  essentially  one  and  the  same  thing  under  all 
circumstances,  because  as  money  its  value  being  entirely  con- 
ventional, it  values  only  in  the  character  of  abstract  units  : 
the  difference  in  point  of  science  is  in  the  manner  of  local- 
izing and  limiting  them.  It  is  mathematically  impossible 
for  it  to  be  otherwise,  because  as  money  it  is  a  series  of  valu- 
ing units.     If  a  valuing  unit  in  a  ratio  or  an  equation  of  ex- 


MONETARY   AND   INDUSTRIAL  FALLACIKS.  139 

clninge  can  be  a  commodity  having  intrinsic  utility,  and 
therefore  exchangeable  value  by  reason  of  that  utility,  then 
gold  coin  in  a  ratio  or  an  equation  of  exchange  is  a  com- 
modity. But  such  an  atiinnation  is  an  absurdity  in  terms. 
A  good  bank-note  is  worth  its  face,  as  tlie  expression  is, 
aside  from  its  use  as  money.  Its  being  so  gives  it  a  value 
equal  to  that  expressed  on  its  face  as  a  mere  debt.  But  this 
value  is  totally  distinct  from  its  conventional  value  in  ex- 
change for  what  it  buys.  The  latter  is  means  to  an  end 
and  not  an  end  itself.  As  money  it  is  worthless  except  to 
buy  with,  and  its  value  in  exchange  for  other  things  is  con- 
stantly varying.  The  fact  that  it  is  good  and  convertible 
is  means  whereby  the  number  of  units  of  money  put  in  cir- 
culation in  that  shape  is  limited,  and  each  unit  thereby 
maintained  in  its  exchangeable  value  with  the  least  variation 
possible.  An  excessive  volume,  as  well  as  increased  circula- 
tion or  use  of  the  units  through  deposit  loans,  may  depreci- 
ate them  twenty-five  per  cent,  in  purchasing  power,  while 
they  remain  as  collectible  as  ever.  Their  limitation  in  vol- 
ume and  circulation  is  not  always  duly  maintained,  and  as 
the  numbers  of  money  units  in  the  daily  ratios  of  value  and 
equations  of  exchange  increase,  they  lose  exchangeable  value. 
Precisely  so  with  gold  and  silver.  They  value  in  their  char- 
acter of  units  precisely  as  do  bank-notes  or  "  bank  credits," 
if  it  be  true  that  the  latter  are  used  in  the  character  of  units 
of  money.  Hence  the  purchasing  power  of  a  unit  of  silver 
or  gold  called  a  dollar  has  an  exchangeable  value  entirely 
distinct  from  the  value  of  its  bullion  reckoned  in  units  of  sil- 
ver or  gold  dollars.  The  value  of  the  latter  might  sink  one 
half,  as  it  already  has  nearly  one  sixth,  without  affecting  the 
value  of  the  unit  in  exchange.  That  the  bullion  of  the  unit 
will  sell  for  the  unit  itself  is  merely  a  coincidence,  and  not 
cause  and  effect.  To  make  the  coincidence  always  cause 
and  effect,  it  would  be  necessary  to  fix  by  treaty  the  barter 
rates  between  gold  and  silver,  and  never  to  vary  in  the  slight- 
est from  those  rates  in  coining  anywhere,  to  coin  freely  for 
all  bullion  holders,  or  to  allow  every  merchant  and  banker 
to  coin  and  verify  his  own  metal.     The  bullion  of  the  unit 


140  MONETARY   ^VND   INDUSTRIAL  FALLACIES. 

■would  in  that  case  always  sell  for  the  unit  itself,  and  could 
be  converted  without  loss  into  other  units  as  long  as  it  con- 
tinued of  full  weight.  Money  is  an  invention  to  facilitate 
exchanges  :  it  is  impossible  for  you  to  understand  it  unless 
you  keep  this  truth  steadily  before  you.  The  difference  be- 
tween barter  exchange  and  exchange  by  means  of  money 
lies  in  the  fact  (a  very  important  one)  that  the  units  of  valu- 
ation or  comparison  in  barter,  which  precede  the  exchange 
of  commodities,  are  by  means  of  money  actually  converted 
into  tangible  things :  shells,  wampum,  elk  teeth,  gold  and 
silver  pieces,  and  bank-notes  with  the  units  expressed  on 
the  face.  Commodities  cannot  be  compared  and  valued 
except  by  units :  the  comparison  and  the  valuation  must  be 
made  in  that  manner,  because  they  can  be  made  in  no  other. 
The  same  comparison  and  valuation  are  made  between  com- 
modities, and  all  kinds  of  merchandise  and  capital  with  units 
of  money  as  with  units  of  barter  :  the  difference  is  that 
with  money  the  units  are  localized,  and  made  the  equivalent 
of  the  commodity  which  a  buyer  wants.  All  who  want 
commodities  to  consume  or  to  sell  obtain  them  in  the  char- 
acter of  buyers.  Everything  is  valued  in  units  of  dollars, 
pounds,  etc.,  and  all  things  exchanged  by  means  of  money 
are  thus  mutually  valued  in  each  other,  as  they  would  be 
under  simple  barter :  the  only  difference  is,  that  they  are  not 
now  brought  together  as  in  barter.  There  being  no  essen- 
tial difference  in  money,  the  function  of  gold  in  all  banking 
reserve  is  essentially  one  of  limitation,  and  thus  we  have 
mathematical  demonstration  of  the  correctness  of  the  rule 
laid  down  by  Adam  Smith  for  banks  of  issue. 

There  is  no  essential  difference  between  one  kind  of  bank- 
ing and  another  in  this  respect.  In  every  ratio  of  valuation 
and  every  equation  of  exchange,  there  ought  to  be,  upon  the 
average,  a  definite  proportion  of  units  of  metal,  —  they  need 
not  be  actually  handled.  They  can  perform  their  valuing 
function  without  being  taken  out  of  reserve  at  all  in  by  far 
the  greatest  number  of  cases ;  but  whether  they  are  or  are  not 
taken  out,  the  principle  of  valuation  and  the  value  of  the 
units  in  the  equations  of  exchange  between  buyers  and  sell- 


MONETARY  AND   INDUSTRIAL   FALLACIES.  141 

ers  are  the  same  in  each  case.  There  is  a  rclaticni  bt-tween 
reserve  and  bank  loans  and  debt,  whatever  the  banklnf^  may 
be,  as  long  as  it  lasts,  but  it  is  altogether  imperfect  unless 
the  ratio  between  them  varies  at  short  averages  according  to 
Adam  Smith's  law. 

Were  banking  reserve  so  kept,  the  fallacy  which  the  last 
generation  of  English  bankers  and  writers  taught  and  have 
fastened  upon  this  generation — that  a  bank  which  is  not  a 
bank  of  issue  deals  in  its  own  debt  or  its  debts  and  credits  — 
would  be  exploded  at  once. 

It  would  also  appear  in  what  sense  it  is  true,  that  there 
can  be  no  undue  expansion  of  "  bank  credits  "  (bank  loans) 
or  bank-notes,  —  in  short,  no  bank  expansion  of  any  kind.  If 
bank  expansion  ought  to  be  in  harmony  with  production  and 
not  with  consumption,  or  in  other  words,  commerce,  then 
there  is  no  undue  expansion,  and  never  has  been  through 
bank  loans  to  producers  and  merchants.  But  bank  expan- 
sion ought,  undoubtedly,  to  follow  Adam  Smith's  law,  and 
if  so,  it  ought  to  be  restrained  within  the  limits  of  commerce 
and  not  of  production. 

By  this  latter  rule,  either  bank  expansion  or  contraction 
has  been  going  on  continually  for  want  of  a  limitation  of  it 
by  reserve.  In  short,  it  is  exceedingly  doubtful  whether  it 
ever  can  be  duly  regulated.  My  friend  proposes  a  plan, 
through  consolidated  redemption  reserve,  of  the  national 
banks,  w^hereby  the  first  step  may  be  taken  towards  it, 
though  many  more  will  be  required  to  reach  it. 

C.  B.  C.  If  what  I  have  just  heard  is  true,  what  folly 
have  I  been  guilty  of  in  proposing  a  winding  up  of  the  na- 
tional banks  and  substituting  my  plan  of  government  issues 
for  bank-notes  !  But  if  banks  have  been  the  cause  of  so  much 
overproduction,  why  would  not  a  currency  consisting  of  gov- 
ernment issues  and  gold  and  silver  without  banks  be  better 
than  a  convertible  currency  with  banks  ?  There  is  no  pi'ob- 
ability  that  O.  P.  E.  and  his  friends  wdll  ever  give  up  their 
opinions,  and,  until  they  do,  reform  is  impossible.  The  only 
reformation  they  can  attempt  with  any  logical  consistency  is 
to  get  rid  of  gold  altogether  as  soon  as  they  can. 


142  MONETARY  AND   INDUSTRIAL   FALLACIES. 

N.  S.  B.  There  is  much  truth  in  what  you  say.  A  cur- 
rency of  three  hundred  millions  of  treasury'-  notes  and  five 
or  six  hundred  millions  of  gold  and  silver,  without  banks, 
would  furnish  a  currency  which  would  maintain  equilibrium 
between  production  on  credit  and  consumption,  between 
money  paid  to  labor  and  money  received  in  exchange  for  the 
products  of  that  labor.  But  it  is  folly  for  practical  men  to 
waste  time  or  money  in  maintaining  the  policy  of  adopting 
such  a  plan.  It  would  be  in  substance  the  French  monetary 
system,  or  rather  absence  of  system.  It  would  leave  loans  to 
be  made  under  the  restraint  of  natural  laws  which  govern 
commerce,  and  through  commerce  the  distribution  of  money. 
It  is  utterly  impracticable  to  carry  out  such  a  plan.  Even 
if  all  bank-notes  were  retired,  deposit- loan  banks  would  con- 
tinue as  before.  There  is  but  one  course  for  all  who  sin- 
cerely desire  the  prosperity  of  the  United  States,  and  that  is, 
to  urge  a  return  as  quickly  as  possible  to  the  use  of  convertible 
bank-notes.  The  plan  I  have  suggested  as  the  first  step  to- 
wards regulating  banking  reserve  of  any  kind  is  a  good  one. 
That  is,  to  consolidate  all  the  bank-note  redemption  reserves 
in  a  redemption  bureau,  and  to  allow  the  reserve  to  count  as 
so  much  collateral  security  for  the  notes,  at  the  same  time  re- 
tiring into  the  possession  of  the  banks  an  equivalent  amount 
of  their  securities  now  held  by  the  general  government. 
The  only  practical  result  my  friend  expects  from  his  labors  is 
in  the  future.  The  minds  of  men  are  occupied  at  present 
with  the  industrial  and  monetary  condition  of  the  country. 
They  are  ready  to  talk,  to  read,  and  to  think  upon  these  sub- 
jects. The  seed  of  truth  now  sown  may  germinate  and  bear 
fruit  to  some  practical  purpose  in  the  future.  Banks  are  not 
the  foes  of  S.  L.  and  his  friends.  The  banks  and  the  manu- 
facturers who  have  employed  S.  L.  and  his  friends  in  the  past, 
and  the  manufacturer  who  has  just  given  him  temporary  em- 
ployment because  he  is  industrious  and  skillful,  and  most  of 
the  merchants  of  the  country,  are  partners,  the  banks  hav- 
ing a  perfectly  guarantied  share  of  the  profits  in  the  shape 
of  discount,  and  an  imperfectly  guarantied  share  through 
interest,  while  they  risk  the  amount  of  their  advances.     The 


MONETARY   AND   INDUSTRIAL  FALLACIES.  143 

difference  between  their  risk  luul  that  of  tlieir  ^lartnors  is, 
that  the  capital  of  the  hitter  must  be  exhausted  before  tliat 
of  the  banks  can  be  touched.  All  the  partners,  including 
the  banks,  are  not  only  willing,  but  anxious,  to  embark  in 
further  production  as  soon  as  the}^  can.  The  only  fault  that 
S.  L.  and  his  friends  can  find,  in  truth  and  justice,  if  they 
were  really  able  to  master  this  complex  subject  of  production 
and  exchange,  is  that  the  producing  partners  ought  to  under- 
stand it  better  than  S.  L.  and  his  friends.  The  fact  is,  that 
with  one  single  exception  they  do  not.  The  exception  is,  that 
the  partners  know  very  well  that  it  is  out  of  their  power  to 
produce  any  faster  than  they  are  now  doing.  The  question 
of  money  they  well  know  is  an  unimportant  one.  As  prac- 
tical men,  they  know  the  money  is  waiting  for  them  wher- 
ever an  opportunity  to  produce  and  sell  offers.  It  is  not 
capital  that  is  waiting;  it  is  the  whole  producing  interest 
which  has  been  exhausted,  not  only  by  the  excess,  but  the 
cost  of  the  overproduction.  If  prices  would  always  remain 
steady,  overproduction  to  this  degree  would  be  impossible, 
and,  were  it  possible,  less  injurious.  If  railroad  iron,  labor 
on  road-bed,  and  rolling-stock  of  a  railroad  built  through  a 
wilderness,  or  houses,  warehouses,  mills,  factories,  and  mu- 
nicipal improvements  in  excess,  cost  no  more  at  the  wrong 
than  at  the  right  time,  the  loss  would  be  less,  and  labor 
could  be  set  to  work  again  sooner ;  but  the  inexorable  con- 
dition of  overproduction  to  excess  is  high  cost. 

C  B.  C.  If  your  opinion  is  correct,  bank  books  ought 
to  sustain  it,  for  they  ought  to  show  bank  expansion  when 
production  and  prices  are  both  in  the  ascending  scale.  But, 
as  you  say,  the  English  authorities  are  mostly  against  this 
view.  They  think  that  merchants  overtrade,  and  not  that 
producers  overproduce. 

N.  S.  B.  You  are  right.  Mr.  Price  deserves  thanks  for 
stating  the  whole  question  so  fairly,  and  with  such  vigor  and 
force,  on  O.  P.  E.'s  side,  and  he  is  never  illogical.  He 
says  that  it  is  just  as  absurd  to  talk  of  an  inflation  of 
hats  as  of  bank-notes.  A  more  forcible,  and,  at  the  same 
time,    truer   expression    in    respect   to   production   and   the 


144         MO^T/^ARY  and  industrial  fallacies. 

auxiliary  exchange  of  money  which  maintains  it  was  never 
made.    Does  a  manufacturer  or  merchant  borrow  more  bank- 
notes than  he  needs  ?     Never  !     The  former  borrows  enough 
to  buy  his  hibor  and  his  raw  material,  and  the  latter  his 
merchandise,  and   no  more.     Excess    is   only  relative.     No 
matter  how  excessive   the   overproduction,  no    more   bank- 
notes have  been  lent  than  were  absolutely  necessary  to  sus- 
tain it.     If   there  is  no  such  thing  as  relative  overproduc- 
tion, then  production  and  commerce   are  alike  in  volume, 
and  no   excess  being  possible  relative  to  production,  there  is 
none  relative  to  commerce  or  consumption.     But  if  over- 
production is,  contrary  to  the  general  opinion,  not  only  pos- 
sible but  actual,  then  while  there  is  and  can  be  no  excess  of 
bank-notes  relative  to  production,  there  can  be  and  is  very 
great  excess  i-elative  to  commerce  and  consumption.     Pro- 
duction is,  therefore,  considered  by  itself,  production  only ; 
considered  relatively  to  real  commerce,  it  is  overproduction 
when  a  large  surplus  remains  after  all  the  exchanges  possible 
have  been  made.    When  it  has  progressed  so  far  that  farther 
progress  is  impossible,  there  is  a  crisis  in  the  production  and 
the  labor  that  supports  it :  the  circulation  of  the  bank-notes 
previously  paid  out  for  labor  is  largely  contracted,  because 
production  has  been  contracted.     The  truth  of  Mr.  Price's 
assertion  is  thus  demonstrated.     There  is  no  excess  of  bank- 
notes absolutely,  and  none  relatively,  unless  production  of 
commodities  ought  to  be  kept  in  subordination  to  the  com- 
merce of  commodities.     If  it  ought,  there  is  excess  of  bank- 
notes relative  to  actual  commerce,  while  production  is  in  ex- 
cess of  that  commerce,  and  the  worst  of  all  its  effects  is  the 
enormous  cost  which  attends  it.     If  the  British  writers,  all  of 
whom  agree  with   Mr.   Price  that,  although  there  may  be 
overtrading,  there  is  no  overproduction,  are  correct,  then  it 
is  idle  to  talk  of  an  inflation  or  expansion  of  bank-notes  or 
their  circulation;  such  a  thing  is  impossible:  but  they  are  not 
correct,  for  when  the  crisis  in  overproduction  comes,  tliere  is 
no  harmony  between  outstanding  notes  and  deposits ;  the  for- 
mer may  have  largely,  but  the  latter  have  enormously,  in- 
creased within  a  few  years  previous ;  at  least  such  ought  to 


MONETARY   AND   INDUSTRIAL  FALLACIES.  145 

be  tlie  fact,  if  it  be  true  that  there  has  been  overproduction 
to  excess. 

0.  P.  E.  Does  not  the  expansion  come  from  overtrading 
and  speculation  only  ? 

C.  B.  V.  If  the  expansion  is  always  attendant  upon  com- 
mercial crises,  I  think  N.  S.  B.  has  made  out  his  case. 

N.  S.  B.  During  the  three  years  preceding  1857,  In  the 
United  States,  while  bank-notes  had  increased  only  ten  mill- 
ions, deposits  had  increased  forty-two  millions,  and  con- 
tracted within  less  than  a  year  after  the  suspension  of  the 
New  York  city  banks  by  a  like  amount. 

In  England,  before  the  passage  of  the  Bank  Act  of  1844, 
and  when  bunk-notes  were  merely  convertible,  deposits  in- 
creased from  less  than  eight  millions  in  the  autumn  of  1823  to 
more  than  ten  millions  in  the  following  Februai'y,  and  fell  to 
nearly  six  millions  in  the  following  August.  In  the  crisis 
of  1837  the  phenomena  were  similar.  Deposits  increased 
from  less  than  eleven  millions  in  February,  1835,  to  more 
than  fourteen  millions  in  February,  1836,  and  fell  to  about 
eight  and  a  half  millions  in  February,  1838.  Under  the 
law  of  1844,  private  deposits  increased  from  less  than  eight 
and  a  half  millions  to  nearly  nineteen  millions  during  1846, 
and  fell  to  less  than  seven  millions  in  1847.  In  1857,  in 
the  United  States,  there  were  at  least  one  hundred  millions 
of  gold  hoarded.  There  has  never  been  a  want  of  gold,  if 
properly  used.  It  is  certain,  therefore,  that  although  the 
principle  upon  which  the  issues  of  the  Bank  of  England  were 
founded  in  1844  are  sound,  they  were  not  carried  far  enough 
owing  to  the  grand  fallacy  of  a  supposed  difference  in  sub- 
stance between  the  loans  of  banks  of  issue  and  those  of 
banks  of  deposit.  There  was  gold  enough  in  England  be- 
fore 1844.  What  was  needed  was  to  maintain  an  even  aver- 
age of  coin  to  bank-notes  in  actual  circulation.  A  limitation 
of  Bank  of  England  notes  by  a  reserve  of  one  pound  in  coin 
for  every  three  pounds  in  notes  would  have  answered.  Lim- 
itation was  really  the  object  of  the  act,  although  it  was  called 
by  another  name.  The  next  generation  of  bankers  and  mer- 
chants will  learn  that  loans  are  one  and  the   same  thing, 

10 


146  MONETARY  AND   INDUSTRIAL   FALLACIES. 

whatever  the  name  of  the  bank  that  makes  them  ;  that  the 
quality  of  all  money  is  one  and  the  same  thing  in  the  ratio 
of  price  and  the  equation  of  exchange  ;  that  the  office  of  gold 
is  one  of  limitation,  and  that  limitation  means  keeping  over- 
production from  proceeding  to  a  crisis.  Labor,  if  it  ever 
takes  its  first,  true  lesson,  will  learn  that  the  accumulation 
of  capital  is  the  condition  precedent  of  its  employment,  and 
that  the  remedy  of  all  its  grievances  is  to  keep  its  surplus 
at  the  plow  :  at  the  plow,  labor  which  is  surplus  elsewhere 
ceases  to  be  surplus.     There  is  no  danger  of  excess  there. 

C.  B.  C.  What  will  be  the  effect  of  a  coinage  of  silver 
by  the  United  States  on  their  own  account  at  the  ratio  of 
16  to  1  ? 

N.  S.  B.  It  may  be  injurious,  if  the  act  permits  duties 
and  interest  on  the  public  debt  to  be  paid  in  silver,  and  the 
silver  is  allowed  to  get  into  circulation  without  retiring  legal- 
tenders,  as  they  are  called,  as  fast  as  it  is  paid  out.  The 
surplus  paper  money  must  be  retired  before  specie  payments 
are  inaugurated  or  soon  afterwards.  If  the  act  were  to  au- 
thorize coinage  at  15|-  and  1,  instead  of  16  and  1,  the  silver 
would  cost  less,  and  it  might  be  gradually  paid  out  for  two 
hundred  millions  of  legal-tenders  and  the  latter  retired. 
Meantime,  duties  and  interest  might  be,  as  now,  payable  in 
gold,  and,  on  the  return  of  specie  payments,  the  silver  would 
be  on  a  par  with  the  gold,  as  now  in  France :  before  that 
time  it  cannot  be  by  any  possibility  unless  the  paper  reaches 
par.  If  the  United  States  are  determined  to  coin  silver 
without  waiting  for  other  nations,  and  wish  to  retain  gold, 
they  must  limit  the  coinage,  unless  they  coin  at  a  rate  low 
enough  to  make  silver  dollars  as  bullion  worth  gold  dollars 
as  bullion,  and  this  would  be  a  matter  of  luck  and  chance. 
Coinage  at  15^  would  be  better  than  16,  because  that  is 
the  old  ratio  of  the  present  silver  circulating  in  Europe. 
Ignoiance  of  the  whole  subject  is  the  only  excuse  for  coining 
at  16  and  making  duties  and  interest  payable  in  silver.  It 
is  very  true,  that  either  at  lb\  or  16  enough  silver  may  be 
coined  in  process  of  time  to  drive  out  all  the  gold  after  the 
return  of  convertibility  and  keep  it  out  for  a  long  time,  if 


MONETARY   AND   INDUSTRIAL  FALLACIES.  147 

there  be  no  change  of  the  coinage  laws  in  any  part  of  Eu- 
rope ;  but  there  is  a  fair  probability  that  the  people  wouKl 
demand  a  rest  before  such  an  end  were  reached.  To  coin  at 
16  and  make  the  interest  on  the  public  debt  payable  in  sil- 
ver is  equivalent  to  paying  in  paper,  and  until  convertibility 
is  established  that  is  repudiation :  this  is  the  right  word  for 
such  an  act,  and  besides  it  would  be  a  needless  and  wanton 
sacrifice  of  the  public  credit  by  an  act  in  itself  injurious  in 
other  respects.  There  is  danger  of  C.  B.  C.'s  party  being 
reinforced  in  some  way  not  yet  apparent,  by  the  most  reck- 
less and  destructive  portion  of  the  community  ;  hatred  of  the 
banks,  hatred  of  capital  generally,  and  more  or  less  of  the 
destructive  spirit  of  communism,  will  ally  itself  with  that 
party.  It  is  time  for  conservative  men  of  all  grades  to  unite 
and'  do  their  utmost  to  enlighten  public  opinion,  now  so 
grossly  misled. 

C.  B.  C.  What  answer  would  you  give,  Mr.  N.  S.  B.,  in 
the  name  of  true  economical  science,  to  the  many  laborers 
who,  if  not  actually  starving,  are  unable  to  earn  full  wages, 
because  they  cannot  get  full  work,  and  to  those  laborers  who 
have  been  driven  away  from  their  forges,  factories,  and  shops, 
for  want  of  being  able  to  get  any  work  at  all  ?  The  only 
answer  O.  P.  E.  or  myself  can  give  is,  that  producers,  capi- 
talists, and  banks  are  at  fault.  We  can  only  say,  in  reply 
to  their  complaints,  that  producers  would  be  able  to  hire 
them,  if  they  could  inspire  a  little  more  confidence  in  capi- 
talists and  banks,  and  induce  them  to  lend.  That  is  why  I 
opened  this  debate,  on  my  part,  with  such  strong  invective 
against  the  banks,  and  a  threat  to  try  to  get  rid  of  the  na- 
tional banks.  I  am  consistent,  but  O.  P.  E.  is  not,  for  he 
finds  no  fault  with  the  banks,  although  we  both  have  the 
same  theory  about  the  impossibility  of  overproduction.  Your 
arguments,  I  must  confess,  have  shaken  my  opinions  very 
much.  How  can  you  answer  the  complaints  of  labor  in  the 
fewest  words,  including  that  which  is  allied  with  commun- 
ism? 

N.  S.  B.  My  answer  is,  that  communism,  Fourierism,  and 
St.  Simouianism  are  in  direct  opposition  to  the  fundamen- 


148  MONETARY   AND   INDUSTRIAL   FALLACIES. 

tal  fact  which  makes  civilization  possible.  That  fact  is  in- 
equality of  condition,  with  difference  of  capacity  and  inclina- 
tion. Inequality  made  accumulations  of  capital  sufficient  to 
bring  about  production  on  credit  possible ;  and  difference  of 
inclination  made  such  accumulations  certain. 

Without  production  on  credit,  modern  civilization,  as  we 
see  it  in  France,  England,  and  the  United  States,  is  impossi- 
ble. It  is  restrained  within  its  natural  limits  in  France,  be- 
cause the  largest  part  of  her  money  is  gold  and  silver,  and 
she  has  no  banks.  The  answer  to  the  demand  of  labor, 
therefore,  is,  that  it  is  largely  out  of  place  in  the  field  of  pro- 
duction ;  it  has  sent  too  many  hands  to  towns  and  cities, 
shops,  factories,  furnaces,  and  looms.  There  is  no  possibility 
of  overproducing  the  absolute  necessaries  of  life,  and  there  is 
abundance  of  land.  If  labor  is  out  of  place,  capital  is  equally 
so,  and  one  has  as  much  justice  in  its  complaints  as  the 
other.  What  is  now  going  on  is  a  rectification  of  the  mis- 
takes of  both,  by  an  heroic  remedy,  which  will  require  time. 
If  the  communist  who  is  out  of  work  and  believes  that  the 
ca]3ital  which  employs  him  is  robbery,  and  that  unless  after 
it  has  employed  and  paid  him  it  will  also  hand  over  its  share 
of  the  product,  the  accumulated  results  of  his  and  his  fellow- 
laborers'  work  ought  to  be  fired  with  the  incendiary's  torch 
and  consumed,  to  furnish  him  and  them,  by  rebuilding,  the 
work  they  seek,  and  revenge  for  not  having  found  work  be- 
fore, the  short  answer  of  true  science,  aside  from  that  of  jus- 
tice, is,  that  he  is  maltreating  the  cause  of  civilization,  which 
has  unfortunately  missed  him,  leaving  him  still  a  savage. 
He  is  either  wilfully  idle  or  has  put  himself  out  of  place  in 
the  field  of  production,  and  he  can  have  no  relief  until  he 
finds  it. 

Capital  in  the  United  States  has  surrendered  itself  largely, 
in  some  of  our  great  cities,  to  the  communistic  part  of  society, 
as  it  presents  itself  in  the  character  of  those  who  live  on 
taxes  without  paying  them.  '  A  currency  reform  like  that 
which  you  have  heard  me  advocate  is  the  most  important 
step  towards  reform  in  this  particular  in  the  first  place,  to 
be  supplemented  by  the  adoption  and  inexorable  application 


MONETARY   AND  INDUSTKIAL  FALLACIES.  149 

of  a  law  which  shall  restrict  the  right  of  voting  for  munici- 
pal offices  within  proper  limits.  The  civili/ed  instinct  must 
assert  and  maintain  itself  against  the  savage. 

*S'.  L.  What  have  the  workingmen  at  largo  of  the  United 
States  to  do  with  this  question  of  misgovernment,  waste,  ex- 
travagance, and  heavy  taxation,  in  cities  ? 

N.  S.  B.  As  a  whole,  not  much,  I  admit.  Taxes  are  not 
levied  in  accordance  with  the  wishes  of  those  who  pay  the 
largest  share  in  cities  and  towns  :  a  reform  must  take  place, 
in  course  of  time.  The  workingmen  of  the  United  States 
are  not  responsible  for  the  present  condition  of  the  cities  and 
towns.  Workingmen  like  you,  S.  L.,  are  indispensable  to 
civilization  ;  but  remember  that  producing  and  loaning  capi- 
talists are  equally  essential,  while  they  take  all  the  risks,  and 
you  workingmen  take  none.  You  are  paid  for  your  labor 
in  advance,  and  capital  takes  the  chances  of  a  market.  The 
first  risk  of  a  sale  is  taken  by  producing  capitalists.  They 
get  nothing  until  a  sale  for  cash  is  made. 

0.  P.  E.  Do  they  not  get  cash  as  soon  as  they  find  a 
merchant  who  buys  by  the  aid  of  a  bank  loan  ? 

N.  S.  B.  They  get  borrowed  money,  but  not  cash,  in  the 
sense  in  which  I  use  the  word.  By  "  cash,"  I  mean  money 
received  on  sales  of  labor's  product  in  a  producing  consumer's 
market.  Producing  capitalists  pa}^  loaning  capitalists  (banks 
included)  interest  in  advance,  for  the  most  part,  as  their  share 
in  the  joint  result,  the  latter  only  risking  actual  advances. 
The  producing  and  trading  risk,  which  is  all  one,  is  divided 
between  these  capitalists,  the  latter  of  whom  guarantee  the 
former.  If  the  payment  of  interest  and  wages,  or  even  wages 
alone,  depended  upon  cash  sales,  there  would  be  little  danger 
of  industrial  crises ;  probably  much  less  than  fifty  per  cent, 
of  the  grand  total  of  wages  now  paid  in  advance,  reserved 
and  made  contingent  upon  such  sales,  would  be  a  good  guar- 
anty fund. 

Of  the  three  partners,  —  Labor,  Producing  Capital,  and 
Loaning  Capital,  —  Labor  alone  takes  its  whole  share  in  ad- 
vance, and  takes  no  risk.  Of  these  partners  Labor  ought  to 
be  the  most  conservative,  as  having  the  greatest  interest  in 


150  MONETARY  AND   INDUSTRIAL  FALLACIES. 

maintaining  the  credit  of  the  general  government.  It  has 
large  investments  in  savings  banks,  and  would  lose  most  by 
general  or  partial  repudiation  of  the  funded  debt  of  the  United 
States,  whatJ^ver  form  repudiation  might  take.  Of  all  the 
partners,  it  would  receive  most  injury  from  C.  B.  C.'s  paper 
money  scheme  or  anything  like  it.  After  we  adjourn,  let  C. 
B.  C.  and  S.  L.  remember  that  I  have  proved  to  a  certainty 
little  short  of  mathematical,  in  this  debate,  that  while  money 
in  use  is  but  a  process  chiefly  for  the  distribution  of  the  fruits 
of  labor  and  the  purchase  of  labor  in  order  to  produce  those 
fruits  before  a  market  is  found  for  them,  of  which  capital 
takes  all  the  risk  ;  and  while,  therefore,  whatever  makes  such 
distribution  and  purchase  must  of  course  be  money,  it  is  a 
necessary  corollary  from  the  demonstration,  that  gold  and 
silver  distributed  throughout  the  commercial  world,  and 
found  where  commerce  left  them,  are  the  safest  and  steadiest 
in  value  of  all  forms  of  money.  The  present  currency  con- 
traction, as  C.  B.  C.  calls  it,  is  only  a  contraction  of  produc- 
tion towards  the  base  line  of  the  absolute  necessaries  of  life  ; 
and  an  issue  of  more  paper  by  the  general  government  could 
not  be  made  unless  gradually,  in  lieu  of  taxes  to  a  like 
amount ;  for  no  bondholder  would  surrender  bonds  for  paper. 
Repudiation  of  the  paper  would  be  the  logical  result  of  such 
issues  indefinitely  continued,  while  the  bonded  debt  would 
remain.  Labor  would  suffer  more  than  capital  ;  but  one 
good  result  might  follow  for  the  next  and  after  generations : 
the  American  people  would  be  effectually  cured  of  all  love 
for  such  paper  money,  and  this  cure  might  lead  ultimately  to 
the  establishment  of  a  sound  system  duly  limited  by  gold  and 
silver.  O.  P.  E.  and  C.  B.  C.  are  both  writers  of  note  upon 
the  science,  so  called,  of  political  economy.  They  do  not  dif- 
fer materially  upon  the  leading  doctrines  or  propositions  of 
that  science,  as  now  taught,  except  as  to  this  question  of 
issuing  more  paper  money  by  the  general  government. 
Their  opinions,  as  expressed  by  themselves  in  this  debate, 
are  fallacies;  they  are  absurdities  in  terms.  If  O.  P.  E.  is 
right,  there  is  less  benefit  to  be  derived  from  getting  back  to 
the  use  of  convertible  paper  money  than  is  generally  supposed. 


MONETARY  AND   INDUSTRIAL   FALLACIES.  151 

He  contnvtlicts  Adam  Smith  in  most  particulars,  because  he 
says  credit  transactions  at  wholesale,  as  he  calls  them,  are  not, 
and  ought  not  to  be  regulated  by  gold.  If  half  the  commerce 
of  the  commercial  world  can  dispense  with  gold,  the  remain- 
ing half,  and  therefore  all  commerce,  can  do  so ;  and  by  his 
own  showing  convertibility  is  a  shadow.  He,  as  well  as  C. 
B.  C,  says  there  can  be  no  overproduction,  and  C.  B,  C 
carries  this  doctrine  to  its  logical  conclusions,  by  asking  more 
money.  C.  B.  C.  and  S.  L.  say  money  is  scarce,  and  they 
desire  to  see  it  plenty.  To  allirm  that  money  is  scai'ce,  how- 
ever, is  just  as  absurd  as  to  allirm  that  wheat  and  provisions, 
cloth,  iron,  and  furniture,  are  scarce.  If  C.  B.  C.  and  S.  L. 
will,  for  the  next  six  months,  when  they  find  themselves  about 
to  say  that  money  is  scarce,  stop  a  moment  to  think,  and 
then  say  instead,  that  the  great  contraction  of  production  has 
made  the  opportunities  to  exchange  labor  for  money  where- 
with to  buy  the  necessaries  of  life  scarce,  it  will  cure  them 
of  their  absurd  ideas  about  money  more  effectually  than  my 
demonstrations.  Remember  that  excess  of  labor  at  the  base 
line  of  production  is  impossible  :  there  can  be  no  overproduc- 
tion there,  but  there  is  periodically  an  excess  of  it  away  from 
that  base  line,  and  no  regulation,  no  limitation  of  that  excess, 
is  in  the  present  state  of  civilization  possible,  except  by  a 
currency  of  gold  and  silver,  or  one  duly  limited  by  gold  and 
silver.  This  is  a  lesson  which  all  the  nations  and  colonies  of 
the  Anglo-Saxon  family  must  and  in  time  will  learn,  and 
when  they  have  learned  it,  they  will  teach  it  to  other  nations, 
and  the  world  of  production,  industry,  and  commerce  will  be 
in  a  better  condition  than  now. 

0.  P.  E.  Before  adjourning,  Mr.  N.  S.  B.,  let  me  ask, 
whether  in  your  opinion  the  Scotch  banks  of  our  time  con- 
stitute an  exception  to  the  law  which  you  claim  to  have  dem- 
onstrated in  relation  to  all  banks. 

N.  S.  B.  The  Scotch  banks  are  untloubteilly  well  man- 
aged, but  being,  as  I  have  shown,  like  all  other  banks,  part- 
ners with  their  customers,  mIio  are  engaged  almost  entirely 
in  producing  and  trading,  they  suffer  with  these,  and  the 
latter  of  course  suffer  in  company  with  the  producing  and 


152  MONETAKY  AND   INDUSTRIAL  FALLACIES. 

trading  people  of  the  whole  kingdom.  The  Scotch  system 
of  credits,  granted  upon  adequate  security  to  all  producers, 
even  farmers,  to  be  repaid  by  instalments  within  a  cer- 
tain period  at  the  option  of  the  borrower,  is  conservative  and 
judicious.  It  is  the  best  possible  method,  except  a  duly  reg- 
ulated reserve,  of  ascertaining  whether  production  is  gaining 
too  rapidly  upon  consumption.  If  in  a  large  Scotch  bank 
daily  deposits  equal  daily  payments  upon  an  average  of  six 
months,  the  banking  is  sound  ;  if  such  be  the  case  in  all 
Scotch  banks,  the  reserve  is  of  little  consequence.  Have  you 
forgotten  one  of  the  most  important  demonstrations  I  have 
given  in  this  debate  ?  I  have  demonstrated  very  clearly,  as 
mj'  friend  has  done  in  his  work,  that  if  all  producers  could 
and  would  produce  no  faster  on  short  averages  than  cash 
markets  could  be  found  to  take  and  absorb  their  products, 
good,  well  managed  banks  would  require  no  reserve  at  all. 
Bank  debt  in  the  shape  of  notes,  or  notes  and  credits,  would 
be  sufficient.  The  Scotch  banks  undoubtedly  come  as  near 
to  maintaining  Adam  Smith's  law  of  equality  between  the 
incoming  stream  which  supplies  and  the  outgoing  which  ex- 
hausts bank  money  as  they  possibly  can  without  adopting 
the  law  which  my  friend  propounds  in  his  book  for  all  banks, 
—  a  ratio  of  metallic  reserve  to  loans  and  bank  debt,  vary- 
ing only  within  short  periods. 

C.  B.  C.  If  what  you  say  about  the  Scotch  banks  is  true, 
why  cannot  some  plan  be  adopted  for  the  use  of  bank  debt 
as  money,  without  the  expense  and  inconvenience  of  gold 
and  silver  ? 

N.  S.  B.  I  have  demonstrated  the  impossibility  of  mak- 
ing such  a  plan  work  successfully  as  a  rule.  There  is  no 
certain  method  of  ascertaining  whether  production  is  in  ad- 
vance of  cash  markets  but  by  a  metallic  reserve,  or  in  other 
words  a  metallic  limitation  of  loans  to  all  producers.  Metal- 
lic units  have  a  limitation  in  the  material  of  which  they  are 
made;  paper  and  credit  units  a  limitation  only  in  the  will  of 
the  issuers.  The  mistake  which  you  and  your  party  make 
lies  here.  You  are  right  in  saying  that  paper  money  is- 
sued by  a  government   like  that  of   the   United  States  is 


MONETARY   AND  INDUSTRIAL  FALLACIES.  lo3 

money,  and  good  money  too;  it  Is  as  certainly  money  as  gold 
and  silver  themselves.  If  it  were  limited  precisely  to  the 
same  extent  as  gold  and  silver,  it  would  be  even  better,  in 
the  sense  that  it  would  be  a  more  convenient  kind  of  money 
for  commerce.  But  because  it  is  not  so  limited  (you  and 
your  party  are  clamoring  for  more),  it  has  been  and  still  is 
more  a  curse  than  a  blessing.  On  the  whole,  it  has  probably 
done  much  harm  and  some  good.  If  it  be  true  that  the 
United  States  could  have  sustained  tlieir  wars  for  independ- 
ence and  the  preservation  of  the  Union  without  issuing  paper 
money,  then  beyond  all  reasonable  doubt  more  loss  than  gain 
has  resulted  from  government  issues,  but  it  would  have  been 
rash  to  make  such  an  assumption  in  advance,  because  gold 
and  silver  hide  themselves  in  times  of  grave  political  as  well 
as  social  and  industrial  crises.  One  thing,  however,  admits 
of  no  doubt,  and  that  is,  that  as  soon  as  the  national  crisis 
had  passed,  government  paper  money  ought  to  have  been  re- 
tired, except  to  a  very  moderate  amount,  as  quickly  as  possi- 
ble, because  it  had  then  accomplislied  all  the  good  it  could  do, 
and  thenceforth  was  a  curse  instead  of  a  blessing  :  this  is  the 
proper  term  to  apply  to  it.  England  suffered  much  from  it ; 
the  United  States  are  now  suffering  from  it,  and  France  has 
wisely  retired  it.  Convertibility  at  as  early  a  day  as  possible 
is  what  every  producer  and  laboring  man  ought  to  desire,  and 
would,  if  he  understood  his  own  true  interest,  although  you 
are  right,  i\Ir.  C.  B.  C,  to  some  extent,  in  saying  that  convert- 
ibility is  a  sham  :  it  always  will  be  a  sham  in  an  economical 
sense,  until  the  object  of  convertibility  in  point  of  science  is 
understood  ;  and  it  never  can  be  undei'stood  until  the  logical 
inferences  and  corollaries  following  from  the  premise,  All 
forms  of  money  are  but  means  to  an  end,  and  the  value  of 
all  money  is  conventional,  are  generally  admitted  among 
scientists.  Until  it  is  ascertained  that  the  true  office  of  gold 
and  silver  in  the  reserve  is  one  of  limitation  of  loans,  there 
will  be  panics,  crises,  and  "  revulsions,"  and  even  afterwards 
there  will  be  more  or  less  disturbance,  because  of  the  con- 
stant tendency  of  laborers  and  producers  to  get  away  from 
the  base  line  of  production,  like  an  impatient  and  thought- 


154  JIONETARY   AND   INDUSTRIAL  FALLACIES. 

less  army  which  ohimors  to  leave  its  first  line  of  support.    The 
crisis  which  is  now  going  on  is  rectification  by  this  base  line. 
Exports   are  continually  gaining.     We  are  receiving  back 
much  of  our  national  debt  which  we  improvidently  lost  in  ex- 
change for  British  and  French  products  in  the  shape  of  iron, 
cloth,  velvets,  silks,  etc.,  at  high   prices,  and   there  is  some 
danger  of  our  being  asked  to  take  it  back  too  rapidly.     We 
are  paying  up  now  in  wheat,  provisions,  cotton,  petroleum, 
and  other  raw  produce.     We  are   "  producing "   less   in  the 
shape  of  iron,  cloth,  etc.,  ourselves,  and  economizing  in  the 
use  of  all  these  articles.     The  more  we  economize  in  these, 
the  less  we  import,  and  so  much  the  greater  the  export  rela- 
tively of  the  articles  named.     So  long  as  this  difference  in- 
creases, we  shall  have  "  hard  times,"   and  the   laborers  who 
have  worked  at  our  looms  and  forges,  as  well  as  manufactur- 
ers, and  in  short  the  whole  community,  will  complain.    When 
the  balance  turns  the  other  way,  then  remember  that  pro- 
duction is  gaining  upon  cash  markets,  and  we  shall  begin  to 
see  "  good  times  "  until  the  inevitable  crisis  comes  again,  — 
inevitable,  I  say,  because  it  must  come  in  some  form,  until 
we  learn  how  to  limit  production  everywhere  at  some  point 
by  cash  markets.     Excess  of  labor  at  the  base  line  is  impos- 
sible.    To  "  advance  "  labor  above  and  beyond  that  line  is 
essential,  however,  to  civilization,  but  there  is  constant  dan- 
ger of  its  proceeding  to  such   excess  that  rectification  by  a 
crisis  becomes  necessary,  so  long  as  there  is  no  limitation  of 
production  on  credit  by  metallic  reserve.    The  reason  is,  that 
the  overproduction  of  cloth,  of  iron,  of  iron  rails,  and  rail- 
roads, municipal  improvements,  buildings,  etc.,  is  disguised 
in  the  high  prices  which  overproduction  always  brings  with 
it,  until  the  inevitable  crisis  comes.     The  result  is,  that  be- 
fore we  know  it  our  base  line  of  agricultural  production  and 
population  becomes  too  small  for  the  superstructure  Avhich  is 
reared  upon  it.     That  superstructure  is  built  up,  not  only 
by  the  labor  of  our  producers  and  their  workmen,  skilled  and 
unskilled,  but  by  that  of  the  producers  and  laborers  of  Eng- 
land, France,  and  other  nations  with  whom  we  deal.    All  these 
foreign  laborers  are  engaged  in  working  up  raw  material  into 


MONETARY   AND   INDUSTRIAL   FALLACIES.  155 

products  for  which  we  pay  high  prices.  We  buy  most  of  their 
products  when  :it  the  higliest  price,  because  production  is 
then  in  the  ascending  scale,  at  least  in  England  and  the 
United  States,  and  a  crisis  happens  usually  in  both  countries 
at  the  same  time.  The  economical  debt  which  labor  above 
the  base  line,  whether  paid  for  in  England  or  the  United 
States,  owes  to  labor  at  that  line,  can  only  be  paid  by  in- 
creasing labor  there,  and  decreasing  labor  elsewhere.  The 
articles  in  which  the  debt  is  being  paid  are  being  sold  at 
moderate  prices  :  the  articles  the  purchase  of  which  was  made 
with  our  government  and  corporation  debt,  were  bought  at 
very  high  prices.  If  production  on  credit  in  both  countries, 
or  in  the  United  States  alone,  had  been  duly  limited,  we 
could  have  built  all  our  railroads  at  lower  prices  and  with 
iron  of  better  quality.  It  was  not  the  want  of  adequate 
"  protection  "  which  caused  this  ;  it  was  the  want  of  a  due 
regulation  of  production.  Unless  our  economists  shall  in 
season  be  able  to  ascertain  the  cause  of  the  mischief  and  a 
remedy,  there  will  be  danger  of  social  and  political  disor- 
ganization. The  young  men  of  New  England  have  left  their 
paternal  acres,  not  altogether  to  find  acres  elsewhere,  but 
also  to  go  into  cities,  towns,  and  villages.  Production  on 
credit  is  the  life  of  modern  industry,  but  we  have  carried  it 
to  excess  at  this  early  period  of  our  national  existence.  It 
has  already  carried  up  the  cost  of  living  to  such  high  figures 
as  to  interfere  seriously  with  the  increase  of  native  popula- 
tion. I  have  demonstrated  to  you  plainly,  in  this  debate,  that 
the  cause  of  high  prices  is  excessive  production  on  credit,  not 
merely  in  the  United  States,  but  abroad.  The  United  States 
suffer  from  English  production  on  credit  more  than  English- 
men themselves,  for  we  never  buy  English  railroad  iron  un- 
less it  is  at  the  highest  price;  we  pay  largely  in  railroad 
and  other  debentures  for  iron  and  other  articles  thus  bought, 
and  we  pay  the  interest  and  eventually  take  up  the  debt  in 
the  costly  manner  before  mentioned.  We  are  immensely  the 
losers,  even  after  we  deduct  those  debentures  which  yield 
no  return.  For  all  this  mismanagement  our  economists 
have  no  name   but   speculation ;  —  speculation,  did  I  say  ? 


156  MONETARY  AND   INDUSTRIAL   FALLACIES. 

They  will  hardly  allow  that  it  is  speculation  :  they  call  it, 
after  the  English  example,  overtrading.  They  have  never 
defined  speculation,  and  they  probably  —  the  most  of  them  — 
confine  it  to  buying  too  many  town  and  city  lots  at  ex- 
travagant prices,  and  trading  in  stocks. 

C.  B.  C.  If  convertibility  is  a  sham,  why  return  to  it  ? 
N.  S.  B.  Because  the  evils  of  any  convertible  currency 
are  much  less  than  those  of  an  inconvertible  one.  Prices 
cannot  be  carried  so  high,  and  there  is  much  less  industrial 
disturbance.  A  crisis  is  sure  to  come  with  any  kind  of  cur- 
rency, when  producers  on  credit  and  lenders  are  not  duly 
checked  and  limited  by  metallic  reserve,  but  the  extent  of 
the  evil  is  less  under  a  convertible  than  under  an  incon- 
vertible currency,  where  a  large  volume  of  paper  is  issued. 
Had  the  United  States  issued  only  one  half  the  paper  which 
was  actually  issued,  the  range  of  prices,  the  disturbance  of 
industry,  and  the  resulting  losses,  would  have  been  much 
less. 

0.  S.  B.  Before  adjourning,  I  think  I  ought  to  say  that 
I  have  read  the  report  of  this  debate  by  N.  S.  B.  in  manu- 
script up  to  the  time  of  our  last  adjournment,  and  I  recollect 
very  well  what  has  been  said  at  this  meeting.  The  report  is 
correct ;  but  it  seems  to  me,  that  without  further  explana- 
tion, some  of  O.  P.  E.'s  remarks,  although  reported  in  the 
very  words  he  used,  will  appear  like  a  travesty  of  his  real 
opinions.  He  has  used  such  plain  and  homely  language 
aljout  gold  and  silver  coin  being  commodities,  bartered  like  a 
ton  of  iron  or  copper,  a  cow  or  a  horse,  for  that  which  is 
given  in  exchange,  that  every  reader  will  consider  the  pres- 
ent school  of  economists,  who,  although  they  use  the  same 
words,  give  them  certain  qualifications,  as  caricatured  in- 
stead of  fairly  represented  by  N.  S.  B.'s  report. 

0.  P.  E.  That  may  possibly  be  the  case,  but  if  gold  coin 
is  a  commodity,  it  must  certainly  be  bartered  when  it  is  ex- 
changed for  another  commodity  :  the  only  difference  between 
this  and  primitive  barter  is  that  gold  and  silver  are  commod- 
ities which  are  always  received  in  exchange  for  other  com- 
modities.    Cattle,  iron,  and  copper  have  been  thus  used.     It 


MONETARY  AND   INDUSTRIAL   FALLACIES.  157 

is  hardly  ])ossible  to  misrepresent  me  upon  that  sul)ject.  If 
a  commodity  is  used  in  all  instead  of  only  a  few  exchanges, 
it  is  still  as  much  a  commodity  in  the  former  as  it  could  be 
in  the  latter,  and  the  exchange  is  none  the  less  barter. 
Adam  Smith  and  most  of  the  British  economists  after  him 
have  maintained  that  the  cost  of  gold  and  silver  reckoned  in 
labor  is  the  measure  of  their  value  in  exchange  for  other 
commodities.  Hence  it  follows  that  they  cannot  lose  any 
part  of  this  value  by  an  overissue  of  bank-notes,  or  an  undue 
expansion  of  bank  loans.  Some  of  the  late  British,  and  I 
believe  all  the  American  writers,  deny  the  truth  of  Smith's 
proposition,  because  it  is  no  more  true  of  gold  and  silver 
than  of  other  commodities,  but  we  —  at  least  the  most  of  us 

—  insist  that  for  other  reasons,  gold  and  silver  never  depre- 
ciate in  consequence  of  an  overissue  of  bank-notes  or  undue 
expansion  of  loans.  To  admit  the  contrary  would  be  illogi- 
cal. We  are  estopped  from  doing  so  when  we  affirm  that 
gold  and  silver  coin  are  commodities  and  subjects  of  barter, 
while,  on  the  other  hand,  bank  and  government  notes  and 
bank  credits  are,  as  you  correctly  say,  only  units,  having  value 
in  virtue  of  conventional  use. 

iV.  S.  B.  You  have  stated  the  case  on  your  side  fairly 
with  all  its  contradictions.  I  say  contradictions,  because  you 
are  logical  and  illogical  at  the  same  time.  You  are  partly 
logical  and  partly  illogical  in  your  inferences  from  your  pre- 
mises, and  you  are  illogical  in  framing  your  premises.  The 
reason  is,  that  you  assume  each  of  two  contradictory  proposi- 
tions to  be  true.    It  is  comparatively  easy  to  draw  inferences, 

—  even  madmen  can  do  this  with  great  accuracy ;  what  you 
lack  is  logical  perception  of  the  fallacy  which  lurks  in  your 
premises.  You  say  true  money  is  a  commodity,  universallj 
received.  To  give  absolute  precision  to  your  expression  I  sug- 
gest an  amendment  to  this  effect :  in  all  equations  of  exchange 
between  buyers  and  sellers  gold  or  silver  coin  is  always,  by 
general  consent  or  law,  placed  as  a  commodity  on  one  side  of 
the  equation,  if  its  owner  chooses  to  put  it  there.  Adam 
Smith,  in  his  masterly  refutation  of  the  absurdities  of  the  mer- 
cantile theory,  says,  "  It  would  be  too  ridiculous  to  go  about 


158  MONETARY   AND   INT)USTRIAL   FALLACIES. 

seriously  to  prove  that  wealth  does  not  consist  in  money,  or 
in  gold  and  silver,  but  in  what  money  purchases,  and  is  value 
only  for  purchasing."  ^  While^  however,  he  demonstrated 
the  absurdities  of  that  theory  carried  to  their  logical  con- 
clusions, he  left  the  root  of  the  theory  unmolested,  by  as- 
serting that  gold  and  silver  coin  are  commodities  whose  value 
is  measured  b}'^  the  labor  they  cost.  You  differ  from  him 
only  in  denying  this  assertion.  Mill,  without  any  important 
variation,  adopts  Smith's  opinion.  Mr.  Bonamy  Price,  al- 
though he  asserts,  on  page  190  of  his  "  Principles  of  Cur- 
renc3%"  that  bullion  (in  coin)  is  neither  wealth  nor  capital, 
asserts  elsewhere  that  it  is  a  commodity  and  a  tool,  —  the 
only  real  money  in  the  world.  These  writers  all  assert  that 
gold  coin  is  a  commodity,  adopted  as  a  universal  equivalent. 
If  the  latter  branch  of  this  proposition  is  true,  the  former 
must  be  false.  Gold  and  silver  are  said  to  have  intrinsic 
value  as  money,  that  value  making  them  the  only  real  money. 
This  assertion  must  be  false,  also,  for  the  same  reason.  A 
commodity  must  have  real  value,  founded  upon  some  qualities 
it  possesses  in  itself,  according  to  the  opinion  of  those  who 
are  ready  to  buy  it.  If  it  possesses  no  such  qualities,  it  can- 
not be  a  commodity.  How,  then,  can  gold  and  silver  coin  as 
money  be  commodities  ?  Their  value  in  the  equation  of  ex- 
change is,  according  to  all  these  writers,  assumed  and  conven- 
tional, and  not  real.  But  it  is  impossible  that  assumed  or 
conventional  value  can  be  given  to  anything  without  at  the 
same  time  making  it  a  unit  and  nothing  more  or  less  in  the 
equation  where  it  is  placed.  All  money  whatever,  values  and 
pays  by  units,  and  it  is  for  this  reason  alone  that  paper  money 
and  money  in  the  reserve,  or  bank  money,  is  so  extensively 
used.  The  fallacy  in  the  premises  must  be  eliminated  before 
you  can  really  understand  what  money  is.  The  premises, 
therefore,  must  be  amended.  The  value  of  all  money  being 
conventional,  necessarily  resolves  itself  into  a  series  of  units 
in  the  ratios  of  valuation  and  equations  of  exchange  between 
buyers  and  sellers.  No  money,  therefore,  can  be  a  commodity, 
or  the  subject  of  barter.    The  premises  correctly  stated,  even 

1    Wealth  of  Nations,  p.  330,  4th  London  ed.,  by  A.  Murray. 


MONETARY  AND   INDUSTRIAL  FALLACIES.  159 

according  to  these  writers,  will  then  be  :  All  money  whiitever 
is  a  series  of  vuluiiig,  purchasing,  and  paying  units.  One  of 
the  inferences  from  these  premises  will  be,  that  in  general 
price  will  depend  upon  the  total  number  of  units  of  commod- 
ities exchanged,  and  the  total  number  of  units  of  money  on 
hand  to  make  the  exchanges  ;  and  subordinately  and  particu- 
larly upon  the  number  of  units  actually  employed  for  that 
purpose  by  liolders  who  come  into  possession  of  them  in  ex- 
change for  things  sold  or  by  loan.  Another  inference  "will 
be,  that  metallic  units,  duly  distributed,  must  furnish  steadier 
prices  than  any  other  kind  of  money  possibly  can,  and  that 
the  most  important  office  of  banking  reserve  is  to  furnish  a 
well-defined  limitation  to  the  number  of  imits  which  can  be 
carried  into  the  markets  where  labor  is  for  sale,  and  thence 
to  the  markets  where  commodities  are  for  sale.  Keep  the 
number  of  units  in  the  former  markets  steady,  and  you  will 
be  sure  to  find  them  steady  in  the  latter.  It  is  certain  that 
all  commercial  and  banking  crises  arise  directly  from  excess 
of  labor  in  certain  quarters,  and  remotely  from  excessive 
loans.  You  must  learn  the  true  theory  of  money  before 
you  can  fully  understand  the  meaning  of  the  remarks  which 
the  practical  sagacity  of  Adam  Smith  induced  him  to  make 
about  metallic  banking  reserve  for  paper  money  and  the 
necessity  of  applying,  if  it  be  practicable,  the  same  rule  to 
all  banking  reserve.  Having  mastered  the  true  theory  of 
money,  you  will  then  be  prepared  to  investigate  the  subject 
of  production  on  credit,  and  of  compelling  it,  by  means  of 
a  metallic  limitation  of  loans,  to  bring  all  its  wares  to  a 
cash  market  within  comparatively  short,  instead  of  com- 
paratively long,  periods;  thereby  gaining  certain  great  ob- 
jects—  steadiness  of  labor,  of  production,  of  wages,  of  profits, 
of  taxes,  of  interest,  and  of  mercantile  and  money  exchanges  ; 
and  C.  B.  C.  and  his  followers  may  possibly  get  rid  of  that 
monstrous  fallacy  which  lurks  in  their  assertion  that  money 
is  scarce. 

C.  B.  0.  Cannot  government  paper  be  limited  by  metal, 
as  well  as  bank  paper  ?  If  it  can,  why  not  retire  the  paper 
of  the  national  banks  by  that  of  government  ? 


160  MONETARY   AND   INDUSTRIAL   FALLACIES. 

If.  S.  B.  So  far  as  the  banks  themselves  are  concerned,  it 
would  be  to  their  advantage,  in  ray  opinion,  to  retire  their 
paper  in  the  manner  suggested,  and  save  taxation,  but  it  is 
absolutely  necessary  for  banks  to  issue  the  paper  in  the  first 
instance  by  loans,  if  we  are  to  have  a  metallic  limitation  of 
paper,  whether  it  be  that  of  government  or  banks.  The 
general  government  can  only  do  it  by  establishing  banking 
offices  throughout  the  country,  and  doing  a  general  banking 
business.  This  is  out  of  the  question,  and  therefore  the 
paper  must  be  issued  by  the  banks,  even  if  furnished  by  the 
government.  They  can  obtain  it  of  the  general  government 
by  buying  it  with  coin,  but  they  would  gain  nothing  by  this 
course.  They  would  be  at  the  expense  of  furnishing  the 
public  the  conveniences  of  a  paper  currency  for  which  they 
would  pay  gold  and  silver,  dollar  for  dollar.  It  would  be 
cheaper  for  them  to  use  gold  and  silver,  and  then  we  should 
have  no  paper  currency  at  all. 

C  B.  C  But  why  cannot  the  government  issue  its  paper 
directly,  according  to  my  interconvertible  bond  and  currency 
plan,  or  some  other  ? 

N.  S.  B.  My  demonstrations  have  been  lost  upon  you,  I 
fear,  after  all.  Have  I  not  already  said  that  we  have  econo- 
mized gold  and  silver  through  banks  ;  that  the  economy  has 
been  effected  and  that  it  must  therefore  be  continued  through 
bank  loans  ?  It  would  be  very  well  to  substitute  govern- 
ment for  bank  paper,  if  it  could  be  done,  but  there  is  no 
method  of  doing  it,  unless  the  government  turns  banker. 
You  desire  to  increase  production  on  credit  by  furnishing 
work  for  labor.  How  can  production  on  credit  take  place 
without  loans  ?  There  is,  furthermore,  as  I  have  just  said,  no 
possible  method  of  furnishing  a  metallic  limitation  to  paper 
money  without  banks  of  some  kind,  and  inasmuch  as  the 
paper  of  state  has  been  retired  by  that  of  national  banks, 
the  general  government  will  soon  have  an  opportunity  of 
establishing,  through  these  banks,  a  metallic  limitation  to 
paper  money  by  requiring  them  to  consolidate  their  reserves 
for  redemption  of  notes  in  a  redemption  bureau  under  gov- 
ernment control ;    liberating   to  that  extent  their  collateral 


MONETAllY   AND   INDUSTRIAL   FALLACIES.  IGI 

securities  for  notes  in  tlie  shape  of  government  debt.  This 
would  be  the  first  step  toward  nietaUic  limitation.  To  retain 
note  circulation  is  of  no  great  importance  to  stockholders  in 
national  banks,  but  it  is  of  great  importance  to  the  citizens 
of  the  United  States,  or,  to  speak  accurately,  it  would  be  so 
if  the  true  object  of  banking  reserve  were  understood. 

G.  B.  C.  Since  this  debate  opened.  Congress  has  passed  an 
act  for  the  coinage  of  silver.  Will  not  this  help  in  the  way 
of  furnishing  metallic  basis  or  limitation,  inasmuch  as  gold  is 
scarct!  ? 

N.  aS'.  B.  Government  paper  to  an  equal  amount  would 
answer  quite  as  well  after  return  to  convertibility,  unless  the 
coinage  of  silver  proceeds  so  far  as  ultimately  to  drive  out 
gold.  There  is  not  the  slightest  benefit  to  be  gained  by  the 
coinage  of  silver,  in  point  of  science,  until  the  commercial 
world  is  ready  for  it,  and  if  it  were  stopped  short  of  that 
point,  government  pajaer  would  answer,  as  it  now  would  in 
Germany  and  France,  if  convertible  into  gold.  Congress 
might  have  saved  three  per  cent,  by  coining  silver  at  the 
European  rate  of  15^,  making  government  debt  and  interest 
payable  in  gold  as  heretofore  ;  and  then  upon  the  return  of 
convertibility,  if  the  silver  coinage  were  not  allowed  to  pro- 
ceed so  far  as  to  drive  out  the  gold,  silver  and  gold  would  be 
on  a  mutual  par  as  in  Germany  and  France.  Silver  would 
thus  follow  the  course  of  government  paper.  It  would  be  on 
a  par  with  it  from  the  start,  and,  in  company  with  it,  rise  to 
the  par  of  gold,  upon  the  return  of  convertibility.  This  will 
be  the  case  with  the  silver  now  being  issued  at  a  heavier 
cost  by  three  per  cent.  To  coin  silver,  if  silver  we  must 
\\2i\^  prematurely,  at  this  additional  cost  of  three  per  cent, 
was  an  ill-advised  act,  undoubtedly,  but  it  is  of  comparatively 
little  importance  by  the  side  of  the  entirely  useless  and 
wanton  injury  to  the  high  credit  of  the  general  government 
in  authori//ing  its  debt  and  interest  to  be  paid  in  silver,  al- 
though this  may  never  happen.  If  one  hundred  and  fifty 
millions  of  silver  could  be  coined  before  January  1,  1879, 
and  one  hundred   and  fifty   millions   of   government  paper 

retired  by  sale  of  bonds,  the  silver  might  be  used,  perhaps,  in 
11 


162  MOXETAllY   AND   INDUSTRIAL  FALLACIES. 

company  with  gold  to  maintain  convertibility,  and  that 
established,  there  would  be  probably  a  general  desire  to  stop 
the  further  coinage  of  silver.  As  to  silver  or  gold  coined  at 
a  barter  rate  in  excess  of  that  of  the  commercial  world,  or  in 
other  words,  in  excess  of  its  bullion  value,  I  say  in  answer 
to  your  question,  that  its  utility  in  the  way  of  limitation  of 
loans  and  of  prices  is  thus  to  a  considerable  extent  lost. 
IVIoney  having  only  conventional  or  assumed  and  therefore 
no  real  value  in  all  equations  of  exchange,"  it  is  mathemat- 
ically impossible  for  it  to  be  a  commodity.  It  is  impossible 
for  anything  to  have  a  conventional  and  real  value  at  the 
same  time.  It  cannot  be  money  and  commodity  at  the  same 
moment.  A  ten  dollar  government  or  bank  note  is  a  good 
debt  if  the  issuer  is  solvent  and  willing  to  pay  ;  but  when 
used  as  money  it  is  not  at  the  same  time  used  as  a  debt  or 
claim  against  the  issuer.  It  has  conventional  value  as  ten 
units  of  money,  and  real  value  as  ten  units  of  debt.  As 
money,  it  is  worth  only  what  it  will  buy;  as  a  debt,  it  might 
or  might  not  sell  at  its  face.  The  value  of  gold  and  silver 
used  as  money  is  of  the  same  character.  It  is  as  easy  to 
assume  that  the  government  or  bank  note  is  worth  ten  units 
called  dollars,  as  to  assume  that  a  gold  eagle  is  worth  the 
same  number  of  units.  The  note  and  the  eagle,  being  equally 
and  alike  conventional,  must  have  value  as  units  only  in  the 
equations  of  exchange.  As  it  is  mathematically  certain  that 
conventional  value  in  the  equations  of  exchange  cannot  be 
real  value,  because  it  would  be  a  contradiction  in  terms  to 
assert  that  it  could  be,  the  gold  eagle  must  value  as  ten  units, 
as  does  also  the  note.  Hence,  in  order  to  obtain  the  highest 
possible  degree  of  steadiness  in  prices,  and  the  most  perfect 
limitation  to  production  on  credit,  the  value  of  the  metallic 
unit  as  money  ought  to  harmonize  with  and  be  equal  to  and 
not  in  excess  of  its  value,  regarded  as  commodity  or  bullion. 
If  money  were  really  a  commodity,  gold  and  silver  would  not 
furnish  this  steadiness,  nor  this  limitation;  neither  would 
overvaluation  of  silver  drive  out  gold,  nor  overvaluation  of 
gold  drive  out  silver  to  other  countries.  But  because  all 
money  values  in  the  character  of  abstract  units  in  equations 


MONETARY   AND   INDUSTRIAL   FALLACIES.  163 

of  exchange,  each  nation  determines  for  itself  the  quantity 
of  metal  its  gold  and  silver  metallic  units  shall  respect- 
ively contain,  and  if  it  varies  from  the  barter  rates  of  the 
metals  used  for  that  purpose,  it  follows  with  certainty,  and 
not  a  mere  trading  probability,  tliat  money  can  be  made  by 
exporting  the  undervalued  bullion,  if  we  assume  the  umler- 
valuation  to  continue.  The  present  condition  of  the  silver 
bullion  market  is  a  practical  proof  of  what  I  have  said.  The 
rapid  building  of  railroads,  mills,  factories,  cities,  and  towns 
comes  from  production  on  credit  —  oi",  in  other  words,  these 
are  largely  built  on  credit.  The  mischief  would  be  much  less 
if  this  rapid  building  were  not  so  costly.  If  our  railroads, 
which  do  not  more  than  pay  running  expenses,  had  cost  less 
by  one  half;  if  municipal  improvements,  for  which  heavy 
taxes  are  paid,  had  cost  in  the  same  proportion,  the  burden 
would  be  comparatively  light.  Were  they  not  built  or  made 
at  all  when  production  on  credit  is  at  its  highest,  they  would 
not  be  built  or  made  when  it  is  at  its  lowest  stage,  however 
cheaply,  because  productive  power  is  then  exhausted.  They 
must  therefore  be  constructed  at  the  most  costly  rates  possi- 
ble, or  at  moderate  and  average  rates.  These  are  the  only 
two  practicable  modes,  and  the  latter  is  the  alternative  I 
propose  by  a  metallic  limitation  of  bank  loans,  with  a  coin- 
age everywhere  at  the  same  rates.  The  base  line  of  agri- 
culture in  the  United  States,  whence  are  furnished  the  raw 
material  and  the  absolute  necessaries  of  life  for  American 
and  all  the  foreign  laboi*ers  and  producers  whose  products  are 
taken  in  exchange,  large  as  it  is,  is  not  large  enough  to  sup- 
port all  the  laborers  and  producers  who  are  furnished  thence 
with  their  raw  material  and  necessaries.  If  twenty  per  cent, 
of  the  surplus  capital  of  labor  in  savings  banks  in  the  United 
States  had  for  the  last  ten  years  been  regularly  invested  in 
cheap  lands,  and  twenty  per  cent,  of  the  laborers  had  settled 
and  remained  upon  them,  the  labor  crisis  would  have  been 
comparatively  light.  It  is  perhaps  impossible  to  convince 
labor,  but  it  is  true,  that  an  excess  of  labor,  away  from  this 
base  line,  both  in  the  United  States  and  the  countries  trad- 
ing with  them,  is  the  cause,  not  only  of  the  sufferings  of  un- 


164  MONETARY  AND   INDUSTRIAL  FALLACIES. 

employed  labor,  which  it  is  now  without  any  reason  laying 
to  the  charge  of  capital,  but  of  the  losses  and  misfortunes  of 
capital  itself.  Metallic  limitation  of  production  on  credit  is 
the  only  remedy  for  labor  as  well  as  capital,  by  keeping  all 
units  of  money  in  harmony,  not  only  with  units  of  commodi- 
ties produced,  but  also  within  comparatively  short  instead  of 
comparatively  long  periods,  in  harmony  with  units  of  com- 
modities consumed,  and  units  of  capital,  sold  for  cash,  not 
borrowed.  This  is  the  object  in  point  of  true  science,  in 
keeping  a  metallic  reserve,  and  to  have  this  effect,  it  must  be 
kept  in  the  manner  already  indicated. 

In  the  metallic  units  which  the  reserve  holds,  it  has  a 
limited  number  of  units  of  money  which,  if  not  artificially 
depreciated,  ought  to  have  the  same  value  as  units  through- 
out the  commercial  world,  because  the  metal  which  furnishes 
them  will  furnish  an  equal  value  in  money  units  evei'vwhere, 
if  the  coinage  is  at  bullion  values.  The  whole  producing  and 
commercial  world  is  now  suffering  a  reaction.  Great  Britain 
is  at  its  head,  but  she  suffers  less  than  the  United  States, 
partly  because  of  the  enormous  extent  to  which  labor  has 
been  called  away  from  the  base  line  in  the  latter,  to  cities, 
towns,  looms,  and  forges,  by  excessive  issues  of  paper  monej'^, 
distributed  and  redistributed  to  labor  through  bank  loans. 
Whenever  there  is  a  reaction  from  excessive  production  in 
Great  Britain,  it  must,  of  course,  extend  throughout  the 
commercial  world,  although  the  present  reaction  in  Germany 
is,  to  a  great  extent,  only  a  coincidence  arising  from  national 
causes.  Both  action  and  reaction  are  continually  gaining  in 
power,  as  one  crisis  follows  another  throughout  the  commer- 
cial world.  A  duly  regulated  monetary  system  would  not 
entirely  remove  the  mischief,  but  it  would  mitigate  it.  If  it 
be  really  true  that  the  great  advance  made  in  this  century 
in  all  countries,  arid  especially  in  the  United  States,  in  the 
machines  and  tools  of  production,  —  in  other  words,  if  the 
advance  of  civilization  has  already  endangered  the  cause  of 
civilization  itself,  by  the  constantly  increasing  intensity  of 
the  reaction  from  constantly  increasing  production  which 
such  improvements  have  rendered  possible,  by  a  constantly  di- 


MONETARY   AND   INDUSTRIAL  FALLACIES.  165 

minisliing  expenditure  of  hiind  hibor,  the  limit  of  production 
has  been  already  reached  ;  but  this  is  a  great  falhiey.  The 
danger  is  not  in  progress,  but  progress  so  rapid  and  costly 
as  to  threaten  social  disorganization.  The  otdy  available 
check  lies  in  putting  some  limitation  upon  production  on 
credit  short  of  a  great  industrial  crisis.  I  know  of  no  practi- 
cable method,  and  I  can  conceive  of  none  except  through  the 
use  of  money,  and  it  lies  in  loans,  because  through  loans  only 
can  production  on  credit  be  maintained,  advanced,  or  arrested. 
To  return  to  metallic  money  in  its  relation  to  production, 
there  is  in  science  no  such  thing  as  token  circulation. 

If  there  were  no  international  commerce,  there  could  cer- 
tainly be  none,  even  in  name,  for  gold  and  silver.  No  nation 
or  sovereign  could,  coin  tokens  except  of  some  other  metal 
and  upon  the  same  principle  with  paper  money. 

After  fixing  the  quantity  of  metal  for  its  metallic  gold  and 
silver  units,  it  could  not  afterwards  make  it  less  without  at 
the  same  time  causing  the  new  as  well  as  the  old  coins  to  lose 
purchasing  power  in  proportion,  and  the  heavy  coins  would 
lose  equally  with  the  light,  because  conventional  value  at- 
taches to  the  unit,  and  not  to  the  bullion  which  makes  the 
unit.  Bullion  value  is  the  result  of  the  unit  value,  and  unit 
value  depends  upon  the  whole  number  of  units.  If  the  total 
number  of  units  of  a  certain  weight  be  one  hundred  millions, 
an  increase  of  their  number  by  one  million  through  change 
in  quantity  of  metal  for  the  unit,  by  adding  one  per  cent,  to 
the  total,  would  cause  loss  of  purchasing  power  in  each  unit 
—  those  of  full  as  well  as  those  of  light  weight  —  in  the  pro- 
portion of  one  million  to  one  luuulred  and  one  millions.  This 
rule  will  not  apply  to  the  commercial  world,  because,  al- 
though one  country,  in  many  respects,  for  purposes  of  com- 
merce, it  is  composed  of  many  countries  politically,  and  for- 
eign coins  can  only  pass  by  comity,  and  never  unless  of  full 
weight.  Were  it  otherwise,  the  benefit  of  metallic  limita- 
tion would  be  lost  in  the  conflict  of  laws  and  rules  of  dif- 
ferent countries  and  mints.  If,  however,  there  were  but  one 
mint  for  the  whole  commercial  world,  the  result  would  be  the 
same  as  if  there  were  but  one  country,  and  what  is  called 


166  MONETARY  AND   INDUSTRIAL  FALLACIES. 

token  coinage  would  be  impossible,  because  the  depreciation 
would  extend  to  all  coins  in  the  world.  This  is  one  of  the 
results  which  follow  from  the  fact  that  money  is  not  a  com- 
modity ;  appreciation  and  depreciation  take  place  in  the 
unit  and  not  in  the  bullion  of  which  it  is  made. 

C.  B.  C.     What  do  you  mean  by  that  ? 

N.  S.  B.  I  mean  that  every  government  and  the  govern- 
ments of  the  commercial  world  together,  if  there  were  but 
one  mint,  could  coin  units  called  dollars,  pounds,  or  francs,  of 
less  metal  than  formerly,  and  pay  their  own  debts,  and  allow 
their  citizens  and  subjects  to  pay  their  debts  with  the  new 
units,  although  the  debts  were  contracted  when  the  old  ones 
were  alone  in  use.  This  would  depreciate  all  the  money 
units  alike,  and  appreciate  the  units  of  goods.  To  increase 
the  metal  of  the  unit  would  have  a  contrary  effect.  The 
depreciation  and  appreciation  hei-e  take  place  in  the  units 
by  increasing  their  number  in  the  former  and  decreasing  it 
in  the  latter,  without  reference  to  the  quantity  of  metal. 
This  could  not  be  done  if  money  were  a  commodity.  There 
is  a  limit  to  this  power  resulting  from  the  unit  theory,  which 
I  will  hereafter  notice. 

To  obtain  the  full  benefit  of  metallic  limitation,  therefore, 
all  countries  should  unite  and  adopt  the  same  ratio.  The 
advantages  of  metallic  limitation  are  lost  to  a  great  extent 
by  silver  coinage  in  the  United  States  at  this  time.  The 
want  of  a  clear,  logical  perception  of  the  difference  be- 
tween the  metallic  unit  and  the  bullion  out  of  which  it  is 
made,  necessarily  arising  from  its  conventional  use,  which, 
by  limiting  the  possible  number  of  units,  if  standard  quantity 
be  adhered  to,  maintains  in  the  abstract  their  purchasing 
power  with  mathematical  exactness,  prevents  you  from  dis- 
covering the  agency  of  money  in  production  on  credit  more 
than  anything  else.  The  notes  and  bills  of  sound  merchants 
and  other  producers  are  given  to  banks  in  exchange  for 
bank-notes  or  credits  in  bank ;  so  far  as  production  on  credit 
is  concerned,  it  is  immaterial  which.  Suppose  these  pro- 
ducers, instead  of  exchanging  their  debt  for  bank  debt,  to 
use   their  own  notes  in  convenient  amounts,  without  any 


MONETARY   AND   INDUSTULVL   FALLACIES.  1G7 

liability  to  redeem  them  in  coin,  however,  but  only  to  fur- 
nish exrhiinge  on  national  and  commercial  points,  all  issuers 
being  mutually  responsible  for  all  issues  :  the  notes  would 
be  paid  out  to  labor,  and  if  labor's  products  sold  for  cash 
within  short  periods  there  could  be  no  expansion  of  prices 
and  metallic  limitation  of  production  would  be  unnecessary. 
If  labor's  products  would  not  sell  in  this  manner,  however, 
but  accumulate  until  stopped  by  the  reaction  of  a  crisis, 
there  would  be  great  and  constantly  increasing  expansion 
of  prices  until  the  crisis,  ami  then  prices  would  fall  and 
money  would  be  "scarce,"  although  there  were  no  change  in 
the  quantity  of  mercantile  money  outstanding.  Mercantile 
money  would  become  redundant  as  "  greenbacks  "  and  bank- 
notes are  redundant  now.  They  could  not  have  been  redun- 
dant at  the  time  of  their  issue,  however,  because  they  were  all 
paid  to  labor  as  they  were  issued  :  they  were  never  in  excess 
of  production  when  issued,  but  they  have  been  made  redun- 
dant since  by  the  falling  off  in  production  and  the  labor 
which  suj)plies  it. 

The  primary  redundancy,  therefore,  was  in  labor,  paid,  fed, 
and  supported,  in  bringing  to  pass  a  relative  surplus  of  re- 
sults ahead  of  time,  and  at  increased  cost.  If  labor,  to  a  cer- 
tain amount,  could  have  been  kept  from  the  beginning  at  its 
proper  place,  expansion  of  production  and  prices  by  the  aid  of 
mercantile  notes  would  have  been  impossible.  The  principle 
is  the  same  with  bank-notes  and  gold  in  the  reserve,  or  bank 
credits,  if  we  assume  the  units  of  the  latter  to  be  paid  out  in 
equations  of  exchange  through  checks.  Metallic  limitation 
of  money  units  and  their  circulation,  by  whatever  process  they 
may  be  placed  in  such  equations,  is  the  only  remedy  which 
science  offers  for  the  mitigation  of  the  evils  i-eferred  to. 

C.  B.  C.  Does  it  not  follow  from  your  demonstration  of 
the  fact  that  in  point  of  science  the  essential  difference  be- 
tween metallic  and  paper  money  lies  in  the  comparatively 
steady  limitation  of  the  number  of  units  which  can  be  ob- 
tained by  sales  and  loans  through  the  former,  that  govern- 
ments ought  to  issue  the  latter  as  well  as  the  former  ? 

N.  S.  B.     I  have  said,  and  I  repeat,  that  it  does,  if  govern- 


168  MONETARY   AND   INDUSTRIAL  FALLACIES. 

iiients  could  and  would  furnish  the  paper  in  accordance  with 
Adam  Smith's  law.  After  all  I  have  said,  you  do  not  yet 
understand  what  that  law  is.  Smith  wrote  his  "  Wealth  of 
Nations "  within  about  twenty-five  years  after  the  period 
when  the  Scotch  banks  had,  for  the  first  time,  sujoplied  all 
the  paper  money,  which,  to  use  his  language,  the  circulation 
of  the  country  could  easily  absorb  and  employ.  He,  there- 
fore, in  view  of  his  opportunities,  as  well  as  his  sagacity, 
is  entitled  to  great  weight  as  an  authority,  aside  from  all 
demonstration,  when  he  says  the  paper  money  of  a  country 
ought  not  to  be  in  excess  of  the  metal  whose  place  it 
takes.  He  only  lacks  logical  precision  in  not  having  added 
that  paper  money  must  necessarily  more  than  fill  the  place 
of  the  metal,  because  it  adds  to  the  total  of  money  precisely 
as  so  much  additional  metal  would,  and,  therefore,  will  more 
than  occupy  the  place  of  the  departing  metal.  Hence  it 
follows  with  certainty,  that  although  Smith,  in  making  this 
assertion,  and  the  additional  one  that  sound  banking  requires 
that  within  short  periods  payments  ought  to  equal  loans, 
laid  down  the  correct  rule,  the  complex  development  of 
banking  since  his  time  demands  a  demonstration  of  the  ap- 
plicability of  the  rule  to  deposit-loan  banks.  This  cannot  be 
done  without  showing  that  all  money,  metallic  included,  is  but 
a  series  of  units.  The  metal  in  a  piece  of  coined  gold  is  not 
money :  the  units  which  it  furnishes  are  money.  Hence 
bank-notes  and  bank  credits,  if  we  assume  the  latter  to  pass 
in  equations  of  exchange  by  checks,  are  money  because  they 
furnish  units  taken  in  exchange  for  commodities.  These 
credits,  if  thus  used,  are  money,  as  well  as  the  units  counted 
out  by  gold.  All  commodities  would  cease  to  be  such  if 
used  as  money  is.  The  precious  metals  are  distributed,  as 
I  have  repeatedly  said,  by  international  and  national  com- 
merce. Each  country  takes  what  it  needs  and  no  more. 
Economy  of  metal  comes  through  banks.  Had  there  never 
been  a  bank  of  issue  or  deposit-loan  in  Scotland,  England, 
or  the  United  States,  there  would  have  been  no  economy  of 
metal  so  far  as  they  are  concerned.  France  and  some  other 
countries,  but  France  especially,  would  have  had  less,  and 


MONKTAllY   AND   INDUSTRIAL   FALLACIES.  169 

they  would  have  had  more  ;  and  the  purchasing  power  of 
the  metalUc  unit  woukl  have  been  greater,  or,  in  otlier  words, 
prices  would  have  been  lower  than  now.  Tiie  distribution, 
however,  would  have  been  uniform  in  proportion  to  com- 
merce. It  is  the  same  now,  except  that  greater  economy 
of  the  metal  in  these  countries  than  in  France  makes  their 
distributive  shares  relatively  less.  This  distribution  is  very 
uniform,  and  hence  the  economy  of  metal  in  these  coun- 
tries ought  to  be  uniform  if  steadiness  of  production  and  of 
prices  are  to  be  maintained  ;  and  hero  in  its  jjroper  place 
comes  the  question,  which  sound  monetary  science  is  alone 
competent  to  answer  :  How  can  paper  money  and  the  re- 
serve of  deposit-loan  banks,  or,  what  from  a  subjective  point 
of  view  amounts  to  the  same  thing,  units  of  bank  debt  stand- 
ing to  the  credit  of  depositors  and  which  they  are  supposed 
to  pay  out  by  checks,  be  kept  in  a  definite  ratio  with  the 
metal  which  has  thus  been,  and  is  always  being  distributed ; 
increasing  and  decreasing,  or  in  other  words  varying,  only  as 
the  metal  thus  distributed  increases  and  decreases,  or  varies  ? 
That  is  the  real  question.  If  governments  can  furnish  gov- 
ernment notes  and  government  loans  in  these  pi'oportions,  it 
is  highly  desirable  that  their  ability  to  do  it  should  be  at 
once  demonstrated  by  those  who  assert  it.  But  it  is  en- 
tirely out  of  the  question,  because  governments  cannot  go 
into  banking.  None  but  those  who  issue  bank-notes  or  pay 
checks  can  keep  a  reserve  of  this  kind,  for  such  a  reserve  is  a 
matter  of  banking  entirely,  and  therefore  an  affair  of  produc- 
ing and  trading.  This  means  that  the  producers  and  traders, 
who  by  borrowing  become  partners  of  the  banks,  sell  as  fast 
as  they  produce  after  a  certain  stage  of  production  indicated 
by  the  reserve  is  reached.  This,  of  course,  is  practically  an 
imp(\ssibility.  Friction  must  be  taken  into  account  when 
mechanical  powers  are  actually  applied.  Production  on 
credit  would  be  stimulated  to  a  considerable  extent  by  bank 
loans,  even  if  the  steadiest  possible  ratio  of  reserve  were 
maintained,  but  the  average  would  be  brought  up  short  of  a 
crisis.  This  I  have  amply  explained  before.  The  reason, 
therefore,  why  governments    ought    not,  as  a  rule,  to  issue 


170  MONETAEY   AND   INDUSTRIAL  FALLACIES. 

paper   money,  is   because   they  cannot  do  it  in   accordance 
with  the  hiw  stated. 

C.  B.  C.  Cannot  the  profits  of  the  issue  be  appropriated 
by  governments  ? 

N.  S.  B.  Wages  must  go  to  those  who  furnish  labor,  and 
profits  to  those  who  furnish  capital  and  pay  expenses.  To 
ask  whether  the  banks  will  pay  the  expense  of  keeping  a 
metallic  reserve,  and  all  the  other  expenses  of  maintaining  a 
paper  circulation,  and  hand  over  the  profits  to  government, 
is  simply  ridiculous.  The  nation  saves  something  by  the 
economy  of  metal,  but  the  cost  is  very  nearly  equal  to  the 
saving.  The  convenience  of  checks  and  paper  over  metal  is 
the  most  important  gain,  and  it  is  great :  the  impossibility  of 
giving  up  the  use  of  these,  and  the  enormous  fall  in  prices 
which  would  follow  the  abandonment  of  banking,  admitting 
its  possibilitjs  make  banks  indispensable  ;  the  profit  on  their 
circulation  is  a  small  matter.  The  great  financial  misfortune 
of  the  day  is  that  monetary  and  banking  science  has  not  pro- 
gressed sufficiently  with  thinkers  and  writers,  bankers,  mer- 
chants, and  skilled  laborers,  to  make  it  appai'ent  that  the 
general  government  ought  not  now  to  lose  the  control  over 
banking  which  it  has  acquired  through  the  national  banks. 
Banks  are  indispensable,  but  it  is  important  and  every  few 
years  becoming  more  and  still  more  important  for  the  gen- 
eral government  to  regulate  and  control  tliem.  There  is 
great  danger  that  this  control  will  be  lost  by  forcing  na- 
tional banks  to  wind  up  through  crude  and  ill-timed  legisla- 
tion. To  no  important  extent  can  labor  be  stimulated  by 
government  issues  alone,  without  the  aid  of  bank  loans. 
Under  no  circumstances  can  the  issue  of  government  paper, 
save  within  the  narrow  limits  already  indicated,  be  justifi- 
able, except  in  some  great  national  crisis  like  that  of  our 
civil  war.  Metallic  money  was  hoarded,  and  government 
issues  furnished  a  substitute  of  the  best  possible  character. 
The  issue  was,  on  the  whole,  too  large,  and  after  the  first  two 
hundred  millions  of  bonds  had  been  sold,  and  perhaps  from 
the  start,  the  interest  on  future  issues  ought  to  have  been 
made  payable  in  paper  until  after  a  general  resumption  of 


MONETAUY   AND   INDUSTRIAL   FALLACIES.  171 

payments  in  coin ;  but  the  grand  mistake  was  in  not  funding 
the  paper  money  in  sutficient  amounts  and  returning  to  con- 
vertibility long  before  this  time.  The  interest  of  all  classes 
would  have  been  promoted,  and  a  large  part  of  the  surplus 
of  unemployed  labor,  still  found  in  cities,  towns,  and  villages, 
would  have  been  employed  in  improving  and  cultivating 
land ;  there  would  have  been  much  less  debt  and  more 
moderate  taxation.  If,  by  good  fortune,  convertibility  shall 
be  not  only  inaugurated  on  the  first  day  of  January,  1879, 
but  maintained  afterwards,  if  possible,  by  the  funding  of  all 
surplus  paper,  the  national  banks  relieved  of  either  national 
or  state  taxes,  their  reserves  for  redemption  of  notes  consoli- 
dated, and  municipal  taxation  hereafter  duly  limited,  pro- 
duction on  credit  will  advance  rapidly  enough  and  we  shall 
have  "  good  times."  If  capital  in  cities  and  large  towns  can 
be  protected  in  no  other  way,  it  must  be  done  by  a  due  limi- 
tation of  the  power  of  running  in  debt.  As  to  popular  fal- 
lacies about  money,  labor,  production,  scarcity  of  money,  etc., 
they  can  never  be  expected  to  give  way, —  certainly  not 
until  scientists  themselves  have  given  up  their  theory  of  the 
impossibility  of  overproduction,  and  their  theory  of  money 
as  having  mercantile  value  in  the  character  of  a  commodity, 
suitable  if  wanted  for  the  retail,  but  entirely  unnecessary  for 
the  wholesale  transactions  of  commerce.  When  they  fully  un- 
derstand and  concede  the  truth  of  Adam  Smith's  law  and 
its  application  to  all  bank  loans,  there  will  be  a  reform  of 
our  present  monetary  system,  and  not  befoi'e.  There  is  no 
country  in  the  world  where  reform  is  more  needed.  Young 
as  the  country  is,  the  labor  question  presents  itself  here  in 
a  more  embarrassing  form  than  elsewhere. 

0.  P.  E.  Does  not  this  arise  from  causes  pai'amount  to 
that  of  money  and  bank  loans  ? 

N.  S.  B.  I  have  already  said  that  it  does,  and  I  think  I 
have  demonstrated  the  truth  of  my  assertion.  If  you  will 
follow  uj)  the  vein  of  thought  which  your  question  implies, 
you  will  soon  agree  with  me  about  money,  bank  loans,  bank- 
ing reserves,  and  production  on  credit.  Bank  loans  are  not 
the  active  cause  :  they  are  only  the  means  by  which  the  act- 


172  MONETARY  AND   INDUSTRIAL   FALLACIES. 

ive  cause  works.  The  active  cause  lies  in  producers  :  labor- 
ers are  the  human  instruments  by  which  they  work,  and 
deposits  and  bank  loans  the  means  by  which  they  and  the 
laborers  and  their  families  are  fed,  clothed,  and  lodged  while 
at  work.  Limit  the  human  instruments  sufficiently  and  you 
will  have  no  overproduction  :  limit  the  means  sufficiently 
and  the  result  will  be  the  same.  You  cannot,  however,  limit 
the  instruments  sufficiently.  The  increasing  efficiency  of 
band  labor  by  improvements  in  machinery  and  processes 
more  than  compensates  for  what  you  can  effect  in  that  di- 
rection. Still,  everything  which  can  be  done  in  the  way  of 
educating  labor,  and  inducing  it  to  convert  its  surplus  wages 
into  capital  in  cooperative  undertakings,  will  be  beneficial. 
Every  dollar  thus  invested  helps  towards  making  up  a  guar- 
anty fund  against  the  dangers  of  excessive  production  on 
credit,  and  in  favor  of  steady  wages,  profits,  and  prices. 
When  labor  has  converted  wages  into  capital,  it  necessarily 
becomes  conservative.  It  perceives  the  risks  which  capital 
is  required  to  take,  and  it  will  not  only  be  satisfied  with 
quick  sales  and  moderate  profits,  but  its  wants  will  demand 
them.  Tyranny  is  more  easily  practiced  by  a  majority  in  a 
democratic  state  than  by  a  single  despot  possessed  of  impe- 
rial power.  Communism  is  at  work  ;  and  while  the  intel- 
ligence of  native-born  laborers  ought  to  be  sufficient  to  pro- 
tect them  against  its  absurdities,  the  conversion  of  business 
into  a  game  of  chance  through  our  monetary  system,  and 
the  consequent  exaggerations  of  the  natural  inequalities  of 
fortune  by  making  so  man}''  bankrupt ;  the  high  cost  of  liv- 
ing which  excessive  production  on  credit  is  sure  to  bring  with 
it ;  the  exhaustion  of  capital  by  excessive  taxation  which  is 
sure  to  follow  it  ;  the  resulting  general  demoralization  and, 
heretofore  in  the  United  States,  extravagant  grants  to  cor- 
porations, furnish  some  reasons  for  its  appearance.  The 
most  effectual  check  of  all  would  be  a  sound  monetary  sys- 
tem. 

0.  P.  JEJ.  You  think  it  necessary  to  convert  us  economists 
to  a  more  scientific  theory  of  money  and  production  before 
there  can  be  a  reform  in  banking  ? 


MONETARY   AND   INDUSTRIAL   FALLACIES.  173 

N.  S.  B.     I  have  said  so.     If  all  the  countries  of  the  com- 
mercial   world  would    combine    and    establish    international 
mints,  no  profit  could  be  made  by  exporting  coin  of  one,  and 
importing  coin  of  another  metal,  as  bullion  ;  that  it  can  be 
done  now  arises  from  the  accident  of  national  mints.     You 
perceive,  therefore,  that  the  assertion  of  Adam  Smith,  of  M, 
J.  B.  Say,  of  iMill,  of  yourself,  and  others,  that  what  is  given 
in  exchanire,  Avhere  metallic  monev  is  used  in  purchases,  is 
the  quantity  of  metal  contained  in  the  coin  paid,  and  not  the 
units  of  money  which  the  metal  furnishes,  is  false.     If  there 
were  none  but  international  mints,  and  the  decimal  system 
adopted,  the  universal  money  unit  being  called  dollar  as  now 
in  the  United  States,  an  eagle  of    half  the  present  weight 
would  circulate  freely  with  one  of  full  weight,  if  such  a  coin 
were  agreed  upon  :  one  would  be  worth  as  much  as  the  other 
everywhere,  while  under  national  coinage  it  would  be  good 
only  within  the  territory  of  the  nation  issuing  it.     It  is  not, 
therefore,  tlie  metal  which  pays,  as  you  assert,  but  the  unit ; 
and  it  is  for  this  reason  that  bank-notes  can  be  and  are  used 
as    money.     They  are    in  a  full  and    perfect  sense  money. 
Such  would  be  units  of  bank  credit,  and  such  would  be  units 
of  mercantile  notes  and  bills  also,  were  they  so  used.     If  Sir 
Robert  Peel  and  others,  instead  of  limiting  bank-notes  by 
metal,  nearly  pound  for  pound,  had  limited  all  bank  loans 
by  a  metallic  reserve  of  twenty  per  cent.,  leaving  the  Bank 
of  England  as  it  was,  and  allowing  it  to  issue  as  many  notes 
as  it  might  choose,  subject  to  convertibility,  the  maintenance 
of  such  a  reserve  in  all  banks  would  have  forced  the  Bank  of 
England  to  keep  at  least  as  large  a  metallic  reserve  against 
its  notes.     Forced,  however,  is  hardly  a  proper  word.     Such 
a  reserve  for  Bank  of  England  notes  would  have  followed  as 
the  necessary  result.     A  limitation  of  bank-notes  undoubt- 
edly is  advantageous,  and  if  applied  to  the  national  banks 
by  consolidating  their  note  reserves,  and  requiring  them  to 
keep  a  definite  ratio  of  reserve,  it  would  be  an  important 
step  in  the  right  direction;  but  a  limitation  of  deposit  loans 
by  reserve  would  be  a  limitation  of  all  bank  loans,  because 
it  is  an  utter  fallacy  to  assert  that  a  bank  deals  in  credit  or 


174  MONETARY  AND  INDUSTRIAL  FALLACIES. 

debt :  it  deals  only  in  what  is  deposited.  The  reason  why 
it  is  asserted,  and  generally  believed,  that  banks  do  so  deal, 
is  becanse  all  units  of  money  are  abstract,  and  it  is  therefore 
true  in  a  subjective  sense.  I  use  the  word  subjective  for 
want  of  a  better.  I  mean  that  by  loans  a  bank  necessarily 
runs  in  debt  to  depositors  over  and  above' immediate  means 
of  payment  in  full,  taking  securities  in  exchange  for  the 
money  it  uses.  The  debt  expands  by  loans,  and  contracts 
by  i^aynient  of  loans.  This  expansion  and  contraction  of 
debt  is  mistaken  for  what  is  sometimes  called  bank  cur- 
rency, in  which  banks  are  supposed  to  deal ;  contrary  as  it 
is  to  the  fact,  because  it  is  only  the  result  of  their  dealings. 
But  because  it  is  the  result,  I  say  that  the  theory  may  be 
said  to  be  subjectively  true.  Assuming  the  theory,  however, 
to  be  true  in  an  active  or  causative  sense  (contrary  to  the 
real  fact),  it  follows  at  once  that  deposit-loan  banks  are 
banks  of  issue  whose  debt  is  circulated  by  check,  and  Adam 
Smith's  law  at  once  applies  to  them. 

0.  P.  E.  Did  not  Smith  say  that  if  bankers  were  re- 
strained from  issuing  notes  below  a  certain  sum,  and  sub- 
jected to  the  obligation  of  immediate  and  unconditional 
payment,  their  trade  might,  with  safety  to  the  public,  be  ren- 
dered, in  all  other  respects,  perfectly  free  ? 

N.  S.  B.  He  did  ;  and  I  believe  he  is  correct,  because  he 
refers  only  to  banks  of  issue  without  the  function  of  de- 
posit, and  his  assertion  would  apply  with  still  more  force  to 
notes  made  payable  at  commercial  centres,  especially  when 
the  government  holds  ample  collateral  security  easily  con- 
vertible. I  have  shown  you  why  deposit-loan  banks  require 
something  more.  Were  it  not  for  the  natural  tendency  to 
excess  in  production  on  credit  when  it  has  an  opportunity 
of  maintaining  itself  by  loans,  it  would  not  only  be  true  of 
all  banks  that  convertibility  alone  is  sufficient,  but  no  re- 
serve whatever  would  be  necessaiy.  Smith  says  that  in  his 
time  failures  among  traders  were  scarcely  one  in  a  thousand. 
There  is  a  vast  change  since  his  time  in  Scotland,  although 
undoubtedly  the  Scotch  system  and  Scotch  habits  are  a  great 
safeguard.    When  Sir  Robert  Peel  was  supporting  his  scheme 


MONETARY   AND   INDUSTRIAL  FALLACIES.  175 

for  making  bank-notes  vary  as  gold  would  in  their  place, 
he  supposed  gold  coin  to  go  into  all  equations  of  exchange  as 
so  much  gold,  and  not  as  so  many  units  of  money.  His  prin- 
ciple of  metallic  variation  was  right,  but  he  did  not  give  it 
the  right  application.  He  was  prevented  from  doing  it  by 
his  theory  of  money,  which  was  not  in  accordance  with  the 
facts  I  have  demonstrated.  He  was  misled,  because  his  theory 
made  him  sujipose  that  there  is  an  essential  difference  be- 
tween a  loan  in  gold  or  bank-notes  and  a  loan  where  neither 
notes  nor  gold  seem  to  pass.  He  did  not  perceive,  any  more 
than  O.  P.  E.  does,  that  in  point  of  true  economical  science 
the  question  in  any  case  where  money  is  loaned  or  used  is  not. 
What  kind  of  money  is  it  ?  but.  What  result  will  the  money 
accomplish  ?  He  did  not  perceive  that  when  a  bank  of  de- 
posit makes  a  loan,  the  resulting  change  in  the  condition  of 
the  bank  is,  that  it  either  takes  gold,  silver,  or  bank-notes 
out  of  its  reserve  and  hands  the  same  to  a  producer  to  pay 
labor,  or  gives  a  credit  to  a  producer  to  pay  for  raw  material, 
or  a  merchant  to  buy  goods  ;  and  that  in  consequence,  before 
a  commercial  crisis,  its  loans,  and  therefore  its  debt  due  de- 
positors over  and  above  reserve,  are  made  up  chiefly  of  two 
items,  wages  and  profits.  The  loans  of  a  bank  of  issue,  if 
there  were  no  deposits  whatever,  would  be  represented  by 
the  same  items,  but,  in  point  of  volume,  more  in  harmony 
with  cash  markets.  The  question  is,  therefore,  not  in  the 
form  of  the  money,  but  the  men  and  the  forces  behind 
money  :  it  is  a  question  of  wages  and  profits,  all  the  way  up 
from  a  very  moderate  and  safe  to  a  less  moderate,  and 
finally,  a  very  expanded  and  dangerous  volume,  sufficient  to 
brine:  on  a  crisis.  What  essetitial  difference  does  it  make, 
whether  this  expansion  comes  by  banks  of  issue  or  of  de- 
posit-loan, or  both?  The  real  question  is,  whether  the 
wages  paid  and  profits  declared  on  account  of  the  produc- 
tion of  those  things  which  have  not  yet  found  cash  buyers 
have  caused  such  an  expansion  ;  and  not  what  kind  of 
money  was  used  to  bring  it  about,  except  only  for  the  pur- 
pose of  ascertaining  the  remedy.  That  remedy  will  never 
be  understood  fully  as  long  as  the  bullion  of  a  gold  or  silver 


176  MONETARY   AND   INDUSTRIAL   FALLACIES. 

or  other  metallic  unit  of  money  is  confounded  with  the  unit 
itself. 

0.  P.  E.  If  governments  could  by  their  acts  depreciate 
the  bullion  of  either  gold  or  silver  coin  to  the  miner's  loss 
except  by  demonetization,  and  you  could  demonstrate  the 
existence  of  such  a  power,  you  might  convert  me,  perhaps,  to 
the  unit  theory  ;  but  the  late  fall  in  silver  has  arisen,  as  I 
think  you  have  yourself  admitted,  from  demonetizations 
only. 

N.  S.  B.  Let  the  unit  theory  stand  or  fall  in  your  opin- 
ion by  that  test.  Governments  and  banks,  by  the  issue  of 
convertible  or  inconvertible  paper,  and  deposit-loan  banks 
by  loans,  depreciate  gold  and  silver  coin,  and  premium,  as  I 
have  demonstrated,  is  an  accident.  If  the  unit  theory  were 
not  true  this  would  be  impossible.  But  you  are  not  satis- 
fied with  this  demonstration.  You  ask  me  to  demonstrate 
that  governments  can  by  legislative  acts,  exclusive  of  demon- 
etization, depreciate  bullion.  If  they  can,  they  can  depreci- 
ate its  value  as  a  commodity  in  the  shape  of  ingots ;  in  other 
words,  its  barter  relation  to  other  bullion,  or,  in  still  other 
terms,  make  a  half  ounce  worth  an  ounce  ;  and  of  course 
such  depreciation  must  be  to  the  miner's  loss.  If  govern- 
ments can  do  this,  it  must  be  by  increasing  the  number  of 
money  units  already  coined,  and  at  the  same  time  diminish- 
ing relatively  the  quantity  of  metal  contained  in  them. 
There  must  be  a  limit  to  this  power,  if  it  exists,  because  if 
money  valuation  is  by  units,  and  not  quantity  of  metal,  an 
increase  in  the  number  of  units  cannot  make  more,  nor  a  de- 
crease in  the  number  less  money  than  before :  it  is  only  in- 
crease or  decrease,  and  therefore  redistribution  of  purchasing 
power  to  each  unit.  Suppose  all  nations,  as  before  sug- 
gested, to  close  their  national,  and  establish  international 
mints,  making  a  dollar  the  unit,  and  employing  both  metals 
—  gold  and  silver  —  at  the  ratio  of  15^  to  1  for  coinage. 
Assume  the  existence  of  five  thousand  millions  of  gold,  and 
a  like  amount  of  silver  coin.  The  whole  of  the  gold  units, 
the  whole  of  the  silver  units,  or  one  half  of  each,  can  be 
doubled  in  number,  and  the  total  of  all  the  units  thus  in- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  177 

creased  from  ten  to  fii'teen  thousand  millions  ;  and  gold  and 
silver  in  each  case  depreciated  as  bullion,  to  the  miner's  loss. 
In  all  the  cases,  the  resulting  depreciation  would  attach 
equally  to  gold  and  silver,  and  each  unit  of  the  series  of  ten 
thousand  millions  lose  ultimately  fifty  per  cent,  of  its  value  in 
exchange,  because  three  units  would  be  worth  only  as  nmch 
as  two  were  before.  ]M.  J.  B.  Say  says  that  it  is  the  quantity 
of  silver  in  a  live  franc  piece  which  is  given  in  exchange ; 
so  say  you  and  most  economists.  If  that  assertion  is  true, 
the  dollar  of  full  weight  ought  to  be  worth  twice  as  much  as 
the  dollar  of  half  weight.  Here  is  a  crucial  test  of  the  unit 
theory  and  the  bullion  theory.  What  would  be  the  fact  ? 
One  would  be  worth  as  much  as  the  other,  and  those  of  light 
weight  would  be  the  more  convenient  of  the  two.  But  would 
the  miner  lose  fifty  per  cent,  in  future  wages  ?  He  certainly 
would,  but  for  one  compensating  accident,  and  even  with  that 
he  would  lose  more  or  less  for  a  time.  The  cheapening  of 
bullion  by  the  increase  of  numbers  in  the  series  of  units  would 
increase  the  consumption  of  the  metals,  and  counteract  the 
falling  tendency  of  bullion  to  a  considerable  extent,  as  I 
have  heretofore  pointed  out  in  this  debate.  Were  there  na- 
tional instead  of  international  mints  only,  it  might  be  profit- 
able, in  a  national  coinage  of  this  kind,  to  export  one  half 
the  units  of  heavy  weight  to  sell  as  bullion  abroad  ;  but  this 
would  be  the  extent  of  the  export,  because  after  that  the 
whole  number  of  units  would  be  the  same  as  at  first,  and  no 
more  could  be  exported  at  a  profit.  No  export  of  this  kind, 
however,  could  take  place  under  international  coinage,  and 
all  the  pieces  would  circulate  in  company.  But  although 
there  would  be  no  assignable  limit  to  the  number  of  units 
and  the  nominal  depreciation  which  might  arise  from  di- 
minishing the  quantity  of  metal  contained  in  them  from 
time  to  time,  aside  from  the  compensating  accident  men- 
tioned, the  precious  metals  have  an  advantage  over  any 
other  materials  and  over  all  forms  of  debt,  in  furnishing  the 
units.  The  metals  are  distributed  everywhere,  and  every 
possible  change  in  the  total  of  units  would  be  so  slow  that  it 
would  affect  equally  all  ratios  of  valuation  and  all  equations 

12 


178  MONETARY  AND   INDUSTRIAL  FALLACIES. 

of  exchange  between  buyers  and  sellers,  debtors  and  ci;ed- 
itors.     The  English  pound  coiild  be  changed  to  a  dollar  so 
gradually  as  to  harm  nobody,  and  in  like  manner  the  Amer- 
ican dollar  could  be  changed  gradually  to  the  French  franc. 
The  sudden  change  in  the  ratio  of  money  units  to  units  of 
merchandise,  by  issues  of  bank  and  government  inconvert- 
ible paper  may  injure  creditors  ;  the  rapid  rise  in  the  ratio 
of  money  units  to  units  of  all  merchandise,  including  what 
they  produce  themselves,  as  production  on  credit  advances, 
and  the  rapid  fall  in  the  ratio  as   production  on  credit  de- 
clines, bankrupt  American  producers   and  make  even  Eng- 
lish production  on  credit  very  costly  to  the  United  States, 
because  they  always  buy  more  English  goods  when  produc- 
tion is  advancing  than  when  it  is  declining,  but  the  distribu- 
tion of  metallic  money  throughout  the  world  makes  sudden 
changes  in  the  total  of  metallic  units  impossible  :  there  is  little 
change  in  this  direction,  although,  through  the  additional  cir- 
culation given  even  to  gold   and  silver  by  the  aid  of  bank 
loans,  rise  and  fall  of  prices  occur.     But  even  granting  that 
sudden   changes  in   the  total  of    metallic   units  could    take 
place  by  coinage,  there  would  be  a  limit  to  its  effects  in  re- 
spect to  the  miner.     Should  the  international  authorities  re- 
coin  one  half  of  all  the  money,  their  power  to  affect  bullion 
values  in  the  case  supposed  would  not  only  cease  from  that 
moment,   but   every   piece   recoined   would    add    to   bullion 
values,  and  therefore   to  the  miner's   wages,  until,  all   the 
pieces  being  recoined,   bullion  values  would  be  restored  to 
their  former  level,  and  unit  values  and  bullion  values  would 
again  exactly  correspond. 

0.  P.  E.  How  does  your  latter  assertion  follow  from  your 
premises  ? 

N.  S,  B.  Gold  and  silver,  being  by  general  consent  or 
tacit  agreement  brought  into  use  as  commodities  of  univer- 
sally exchangeable  value,  become  units  only  in  all  equations 
of  exchange :  the  quantity  of  metal  fixed  upon  for  the  unit 
becomes  important  only  for  the  purpose  of  determining  the 
whole  number  of  units  which  can  be  made  out  of  the  whole 
metallic  material  which  can  be  obtained,  while  the  unit  it- 


MONETARY  AND   INDUSTRIAL  FALLACIES.  179 

self  is  not  employed  as  in  the  case  of  units  of  commodities 
intended  for  use,  like  wheat,  iron,  or  diamonds,  to  determine 
the  quantity  of  metal  actually  delivered  as  the  result  of  such 
equations.  Some  particular  unit  of  weight  must,  therefore, 
be  adopted,  —  it  is  immaterial  which  one.  The  same  number 
of  units  may  be  obtained  by  making  all  of  a  certain  weight, 
or  by  making  two  thirds  of  them  of  a  given  weight  and  the 
remaining  third  of  half  that  weight,  or,  still  retaining  the 
number  (were  it  not  for  the  labor  and  inconvenience),  by 
making  each  of  a  different  Aveight.  The  result  will  be  the 
same  in  either  case,  whichever  division  is  adopted  in  the  first 
instance  and  adhered  to ;  but  if  units  of  one  weight  are 
adopted  at  first  and  units  of  different  weight  temporarily 
adopted  afterwards,  as  in  the  case  supposed,  bullion  values 
will  depreciate  within  the  limits  stated.  If  one  third  of  all 
the  units  of  each  metal  were,  at  the  commencement  of  such 
an  international  coinage,  made  of  a  certain  weight,  and  the 
remaining  two  thirds  of  double  that  weight,  there  would  be 
the  same  number  as  if  all  the  units  were  made  equal  in 
weight.  Two  units  of  twelve  eighteenths  of  an  ounce  each 
for  every  one  of,  six  eighteenths  would  furnish  the  same 
number  of  units  as  if  all  were  made  of  the  weicht  of  ten 
eighteenths  of  an  ounce  each.  If  the  former  system  of  one 
light  for  two  heavy  units  were  adopted  for  all  time,  waiv- 
ing the  increased  danger  of  counterfeits  of  the  light  coin,  the 
miner  would  suffer  no  loss,  and  the  whole  world  would  gain 
much  both  in  wear  of  coin  and  in  convenience,  by  depositing 
a  considerable  portion  of  the  heavy  coin  in  government  or  in- 
ternational vaults  and  circulating  the  light  coin  ;  but  if  that 
system  were  adopted  after  the  international  mints  had  coined 
and  fully  distributed  units  of  equal  weight,  and  maintained 
long  enough  to  recoin  the  existing  stock  of  metal,  the  miner, 
subject  to  the  compensating  incident  before  mentioned, 
would  lose. 

0.  P.  E.  Your  demonstration  is  perfect,  I  confess.  The 
heavy  and  the  light  coins  would  circulate  together,  and  if 
each  were  of  different  weight,  the  smallest  coin  would  be 
very  light,  and  possibly  the  hght  coins  might,  under  special 


180  MONETARY  AND   INDUSTRIAL  FALLACIES. 

circumstances,  command  a  premium.  But  now  that  you 
have  at  last  demonstrated  the  unit  theory  in  such  a  manner 
that  I  am  compelled  to  admit  it,  can  you  demonstrate  to  me 
as  forcibly  your  theory  of  production  on  credit  through 
bank  loans  ? 

JV.  jS.  B.  Allow  me  first  to  conduct  you  to  the  conclusions 
which  follow  necessarily  from  the  premise  you  have  conceded. 
The  conventional  value  of  coin  being  in  the  unit  and  not  in 
its  bullion,  you  perceive  why  paper  money  has  so  largely 
come  into  use,  and  that  the  value  of  all  money,  metallic  in- 
cluded, lies  in  the  limitation  of  its  units.     The  Continental 
money  of  the  American  Revolution    and  French    assignats 
and    mandats   failed    for    want    of   limitation.      The    issues 
were  so  excessive  that,  redeemableness  aside,  they  became 
wholly  unfit  for  use   and    by  common   consent  were  aban- 
doned.    Such  was  the  case  with  the  issues  of  the  agricult- 
ural banks  of  Michigan  and  most  of  the  free  banks  of  In- 
diana and  Illinois.     Such  might  be  the  case  with  gold  and 
silver  were  it  not  for  the  limitation  imposed  by  the  material 
of  which  they  are  made.     The  number  of  their  units  may,  as 
I  have  just  shown,  be  temporarily  increased  to  the  loss  of 
creditors  and  miners,  but  the  compensating  incident  before 
mentioned  stands  as  a  check,  and  if  it  did  not,  the  loss  of 
profits  and  wages  would  check  mining.      You  have  here  a 
demonstration  also  of  the  falsity  of  the  theory  that  the  cost 
of  metal  in  mining  measures  its  value  in  exchange.     This 
theory  puts  effect  for  cause,  and  putting  effects  for  causes  is 
the  chief  reason  why  there  has  been  no  advance  in  monetary 
science.     The  loss  in  the  case  supposed  comes  to  the  miner 
from  the  fact  that  the  unit  value  of  the  coin  controls  its  bull- 
ion value:   the  compensation  for  the   loss   comes   from  the 
same  source,  because,  while  the  increase  in  number  of  the 
units  cheapens  bullion  for  the  miner,  it  creates  at  the  same 
time  a  greater  demand  for  it  as  ordinary  commodity,  for  art 
and    manufacturing   purposes.     The  superiority  of  metallic 
over  other  money,  whatever  form  it  may  be  supposed  to  as- 
sume, —  that  of  government  and  bank,  mercantile  or  other 
notes  and  bills,  or,  if  you  choose,  bank  credits,  —  consists  in 


MONETARY   AND    INDUSTRIAL  FALLACIKS.  181 

the  steady  limitation  of  the  number  of  its  units  which  the 
compkix  elements  just  stated  furnish,  with  the  additional 
fact  that  the  mercantile  theory  of  metallic  money  which 
ai'isesfrom  confounding,  as  you  yourself  have  done  until  now, 
the  unit  and  bullion  (commodity)  values  together,  helps  to 
distribute  it  throughout  the  commercial  world,  and  to  retire 
it  in  presence  of  large  issues  of  paper,  as  of  late  in  France,  in 
the  United  States  in  18.j7,  and  to  some  extent  in  Adam 
Smith's  time  in  Scotland,  after  the  establishment  of  the 
Bank  of  Ayr.  All  money  is  in  point  of  science  the  same, 
because,  as  money,  it  is  but  a  unit  or  series  of  units  localized, 
limited,  and  named.  Hence  it  follows  that  if  depositors  pay 
out  units  of  bank  debt,  standing  to  their  credit  in  banks  of 
deposit,  as  you  claim,  instead  of  money  in  the  reserve,  as  I 
have  asserted  and  proved,  these  units  of  debt  are  employed 
as  money  and  are  money,  the  same  as  the  bank-notes  and 
coin  which  the  reserve  contains.  You  may,  if  you  choose,  call 
units  of  checks  and  of  bills  of  exchange  money  instead  of  the 
units  of  bank  debt  they  transfer.  If  bills  of  exchange  are  to 
be  treated  as  money,  it  must  be  because  they  are  in  effect 
drawn  upon  a  bank  or  banker,  through  an  intermediary. 

0.  P.  E.  In  what  way  ? 

N.  S.  B.  A.  in  Chicago  draws  upon  B.  in  Buffalo  or  New 
York  on  account  of  a  cargo  of  wheat.  B.  accepts  and  sells 
to  C,  who  pays  out  of  proceeds  of  sale  to  D.,  who  borrows  from 
a  bank  and  pays  by  check.  The  principle  is  the  same  if  B. 
resides  in  Liverpool.  A.  in  effect  draws  upon  a  bank  through 
the  acceptor  as  an  intermediary.  By  confounding  the  unit 
with  its  bullion  you  have  made  an  unscientific  distinction  be- 
tween metallic  and  other  forms  of  money ':  the  scientific  dis- 
tinction is  the  one  I  have  given.  It  follows  that  if  one  of 
the  customers  of  a  bank  makes  a  loan,  and  the  proceeds  are 
placed  to  his  credit,  and  he  pays  by  check  which  contracts 
bank  debt  without  any  money  being  actually  taken  out  of 
the  reserve,  he  has  borrowed  and  paid  money  precisely  as  if 
he  had  taken  metal  out  of  the  reserve,  and  the  payee  who 
received  had  not  redeposited  it.  It  is  an  utter  fallacy  to  as- 
sert that  a  bank  does  not  deal  iu  money  :  it  is  a  fallacy  to  as- 


182  MONETARY   AND   INDUSTRIxiL  FALLACIES. 

sert  that  it  does  not  loan  out  of  its  reserve.  It  is  false  to  as- 
sert that  a  bank  deals  in  any  form  of  bank  debt  save  that  of 
bank-notes  :  it  is  true  that  a  bank  owes  more  or  less,  precisely 
as  it  uses  more  or  less  of  depositors'  money,  and  it  is  true 
that  the  reserve  is  sufficient  to  supply  as  much  circulation  as 
could  be  supplied  by  the  deposits,  if  paid  out  to  and  held  by 
depositors  in  their  own  hands  in  the  shape  of  bank-notes. 
Therefore,  if  we  assume  that  a  depositor  puts  units  of  bank 
debt  outside  of  the  reserve  in  circulation,  or  pays  them  out 
by  the  instrumentality  of  his  check,  or  if  we  call  the  units  of 
his  check  so  many  units  loaned  him  by  the  bank,  then  a  de- 
posit-loan bank  is  a  bank  of  issue,  and  its  issues  in  this  case 
consist  of  units  of  bank  debt  placed  to  his  credit  and  put  in 
circulation  by  his  check,  if  no  money  is  actually  withdrawn 
from  the  reserve.  If  you  choose  to  adhere  to  this  theory,  be 
it  so  :  perhaps  it  will  enable  you  at  this  time  to  understand 
more  readily  my  demonstration.  You  must  not  fail,  however, 
to  bear  in  mind  that  logical  precision  demands  that  if  you 
assume  you  must  rigorously  maintain  the  assumption  (false 
in  point  of  fact  undoubtedly)  that  the  deposit-loan  bank  is, 
in  this  case,  in  respect  to  this  particular  loan  and  all  other 
like  loans,  to  be  considered  as  a  bank  which  has  issued  units 
of  debt  placed  to  the  credit  of  the  account  of  the  borrower, 
who  thereby  becomes  so  far  a  depositor,  if  you  deny  that  his 
check  is  paid  out  of  the  reserve. 

0.  P.  E.  To  assist  you  in  making  the  statement  of  our 
side  of  the  case  as  plain  as  possible,  let  me  say,  that  we  never 
admitted  and  never  supposed  that  credits  are  actually  issued 
like  bank-notes.  We  say  that  banks  and  depositors  bring 
their  accounts  together  and  set  off  one  against  the  other  with- 
out moving  a  single  coin  or  note.  Some  are  debited,  some 
are  credited,  and  most  are  probably  both  debited  and  cred- 
ited at  the  same  time,  and  the  proper  entries  are  made  on 
clearing-house  and  bank  books.  These  entries  are  a  matter 
of  bookkeeping,  and  hence  we  claim  that  we  are  fully  justi- 
fied in  saying  that  a  bank  deals  in  credits,  or  perhaps  more 
properly,  debts  and  credits.  I  concede,  however,  as  the  result 
of  your  demonstration,  that  these  debts  and  credits,  the  units 


MONETARY   AND   INDUSTRIAL   FALLACIKS.  183 

of  which  appear  now  to  belong  to  A.  and  then  to  B.,  and  to 
expand  or  contract  as  the  case  may  be  on  the  bank  books, 
are,  because  they  are  used  as  such,  units  of  money,  as  much 
so  as  the  units  of  notes  and  gold  in  the  reserve :  they  are  the 
same  because  they  perform  the  same  office.  It  seems,  there- 
fore, to  be  unimportant,  because  a  mere  question  of  words, 
whether  we  say  that  thi?  bank  issues  these  units  or  not.  Be- 
ing money,  I  concede  now  that  they  ought  to  be  in  harmony 
of  proportion  with  the  money  in  the  reserve.  The  only  ques- 
tion between  us  is,  whether  deposits  arise  from  the  i^roduc- 
tion  or  the  sale  of  commodities. 

iV.  *S'.  B.  It  is  important  for  more  than  one  purpose.  It  is 
important,  because  all  cash  sales  by  bank  debtors  diminish 
bank  debt,  and  all  sales  which  are  not  for  cash  increase  it. 
The  question  now  relates  to  bank  debt.  That  diminishes 
and  the  reserve  inci'eases  by  cash  sales  of  merchandise,  or,  in 
other  words,  sales  to  or  for  consumers.  Hence,  if  such  sales 
were  to  proceed  indefinitely  without  any  counteracting  cause, 
nothing  would  be  left  but  the  reserve,  and  banks  w^ould  have 
a  dollar  in  cash  to  show  for  every  dollar  of  their  debt.  A 
sale  of  merchandise  for  money  borrowed  from  a  bank,  on  the 
contrary,  increases  bank  debt  by  the  amount  of  profits  and 
charges,  which  are  so  much  additional  production.  You  and 
your  friends  have  always,  as  you  say,  maintained  that  de- 
posits arise  from  sales.  That  is  a  mistake.  Tiie  sale  of 
commodities  for  consumption,  instead  of  creating,  anniliilates 
deposits  by  paying  bank  loans ;  for  bank  loans  created  all 
the  bank  debt  there  is  over  and  above  reserve.  For  every 
bank  loan  paid  there  is  so  much  of  bank  debt  paid,  and  there- 
fore a  like  amount  of  deposits  annihilated.  Consumption, 
then,  is  the  paramount  cause  which  destroys  deposits,  and 
hence  the  production  and  not  the  sale  of  commodities  creates 
them.  The  set-off  which  you  speak  of,  therefore,  takes  place 
only  when  sales  are  made  outside  of  consumers'  markets,  and 
the  purchases  create  the  same  or  more  bank  debt  than  they 
extinfruish,  but  never  diminish  it.  That  sales  of  this  char- 
acter  create  deposits  there  is  no  doubt.  They  increase  them, 
by  all  the   profits  and   charges  accruing,  down  to  the  last 


184  MONETARY   AKD   INDUSTRIAL  FALLACIES. 

buyer,  but  the  profits  and  chai-ges  represent  so  much  addi- 
tional production.  If  it  were  otherwise,  the  enormous  ex- 
pansions of  deposits  in  the  United  States  and  England,  before 
referred  to,  would  have  shown  merely  speculative  advances 
in  the  price  of  stocks  of  merchandise  on  hand  requisite  to 
supply  consumers'  markets,  which  is  absurd  and  impossible. 
Between  1854  and  1857  deposits  increased  forty-two  millions 
in  the  United  States.  If  this  had  merely  indicated  a  specu- 
lative advance  in  the  average  total  of  merchandise  on  hand, 
what  caused  the  advance  ?  A  general  advance  without  an  in- 
crease of  money  in  circulation  is  impossible,  and  if  the  total 
of  commodities,  or  merchandise  on  hand  to  supply  consumers' 
markets,  did  not,  as  you  affirm,  increase,  then  the  consumption 
of  commodities,  which  at  least  maintained  itself  at  its  former 
average,  would  have  annihilated  bank  debt,  and  therefore  de- 
posits, precisely  as  it  had  done  three  years  before ;  and  the 
forty-two  millions  of  deposits  could  never  have  been  created, 
and  any  increase  of  deposits  would  have  been  slow  and  regu- 
lar. It  was  not,  therefore,  a  speculative,  but  a  well-founded 
advance  in  the  volume  of  deposits,  for  it  arose  from  the  act- 
ual creation  of  wealth  :  wages  and  profits  made  up  the  items 
of  the  forty-two  millions,  for  the  most  part.  Prices  undoubt- 
edly rose  from  putting  in  circulation  from  day  to  day  a  vol- 
ume of  money  sufficient  to  pay  those  wages  and  profits,  un- 
til the  overproduction,  which  was  in  the  end  a  cause  more 
potent  in  bringing  down  than  increasing  circulation  of  money 
had  been  in  raising  and  sustaining  prices,  brought  on  the 
crisis.  It  was  this  rise  of  prices  which  so  long,  and  up  to 
the  crisis,  had  disguised  the  real  fall.  Deposits  increased  in 
this  manner  because  loans  were  not  regulated  by  metallic 
reserve,  and  bank-notes,  which  ought  to  have  been  returned 
for  redemption,  were,  on  the  contrary,  used  as  additional 
"  means."  Had  the  loans  been  partly  employed  in  paying 
wages  for  the  improvement  of  land,  as  in  the  case  of  the 
Bank  of  Ayr,  instead  of  wages  for  the  manufacture  of  such 
articles  as  iron  and  cloth,  and  the  building  of  railroads,  only, 
the  result  would  have  been  less  disastrous.  Whether  the 
wages  of  labor  paid  by  bank  loans  result  in  manufactured 


MONETARY  AND   INDUSTRIAL   FALLACIES.  185 

commodities  for  consumption,  or  oapitul  in  tlie  shape  of  rail- 
roads, makes  no  difference,  except  in  the  duration  of  the  re- 
sulting crisis.  The  true  office  of  a  metallic  reserve  is  to  make 
it  impossible  to  pay  wages,  after  a  certain  point  in  produc- 
tion is  reached,  any  faster  than  the  resulting  product  of 
wages  can  find  cash  buyers.  If  the  product  takes  tlie  shape 
of  commodities,  it  must  find  consumers ;  if  of  capital,  cash 
buyers,  because  it  is  productive.  If  your  theory  that  de- 
posits over  and  above  reserve  arise  from  sales  of  commodi- 
ities,  or  in  other  words  actual  commerce,  were  true,  then, 
indeed,  you  would  be  right  in  saying,  as  you  do,  that  the  re- 
serve has  no  necessary  relation  to  deposits  in  excess  of  itself ; 
but  you  noAv  must  certainly  perceive  that  this  is  a  mistake. 

0.  P.  E.  You  are  right:  your  demonstration  is  perfect. 
I  perceive  now  not  only  tlie  necessity  of  a  reserve,  as  I  have 
always  done,  but  I  also  perceive  that  its  true  office  is,  as  you 
state,  to  limit  loans,  in  order  to  limit  pi'oduction.  No  doubt 
with  such  a  limitation  more  production  would,  on  the  aver- 
age, take  place  than  without  it,  and  the  principal  reason  why 
I  with  other  American  writers  have  been  misled  in  relation 
to  the  proper  office  of  a  reserve  is,  that  we  have  confounded 
the  unit  value  of  metallic  money  with  the  metal  of  which  it 
is  made.  While  we  have  denied  the  doctrine  of  Adam  Smith 
and  the  British  writers,  that  the  cost  in  labor  of  mining  the 
precious  metals  is  the  measure  of  their  value,  we  have  ad- 
mitted the  conclusion  which  follows  from  that  theory,  namely, 
that  the  quantity  of  bullion  in  a  unit  determines  the  unit's 
value,  instead  of  the  latter  determining  the  former.  Hence 
we  have  always  maintained  that  as  long  as  what  we  call 
bank  credit  is  on  a  par  with  and  convertible  into  gold,  that 
alone  is  sufficient,  forgetting  that  depreciation  in  all  the 
money  units  which  arises  from  borrowing  and  paying  them 
to  labor  in  the  character  of  wages,  faster  than  the  products  of 
labor  will  sell,  as  well  as  from  actually  increasing  their  total 
number,  carries  with  it  the  metal  of  which  the  unit  is  made. 
In  short,  we  have  admitted  conclusions  not  warranted  by  our 
premises.  We  have  lacked  logical  precision,  because,  while 
virtually  admitting  the  unit  theory  by  denying  that  of  Adam 


186  MONETARY  AND   INDUSTRIAL  FALLACIES. 


> 


Smith  and  other  British  writers,  we  have,  by  admitting  that 
the  value  of  money  lies  in  its  bullion,  conceded  the  truth  of 
that  theory,  and  our  reasoning  upon  the  subject  of  money  is 
but  a  tissue  of  contradictions,  or,  as  you  said  in  the  begin- 
ning of  this  debate,  in  words  whicli  irritated  me  at  the  time, 
but  of  which  I  now  see  the  force,  chaos  itself.  Labor  is  not 
that  which  gives  value.  Men  might  toil  indefinitely  without 
creating  any  value  if  no  one  would  exchange  with  them. 
Wants  to  be  supplied  are  the  foundation  of  exchanges,  and 
labor  is  the  source  which  supplies  the  things  to  be  exchanged. 
Labor  is  a  source  of  supply,  and  not  a  measure  of  value. 
Value  is  one  half,  or,  in  other  words,  one  side  of  every  simple 
equation  of  exchange,  and  where  money  is  in  use,  units  of 
money  constitute  one  side  and  units  of  goods  or  capital  the 
other  side  of  the  equation.  Hence  wants  to  be  supplied,  and 
surplus  commodities  which  some  holders  possess  and  are  will- 
ing to  part  with  in  order  to  supply  those  wants,  determine 
in  general  the  exchangeable  value  of  the  surplus  commodi- 
ties of  other  holders.  There  are  no  wants  to  be  supplied  by 
money,  but  only  by  what  money  buys,  and  therefore  inas- 
much as  cost  of  mining  does  not  determine  the  value  of  me- 
tallic material,  quantity  alone  determines  it  without  regard 
to  any  intrinsic  qualities  of  the  metal,  and  therefore  with  re- 
gard only  to  the  number  of  units  Avhich  can  be  made  of  it. 
The  value  of  the  metal  is  conventional  and  lies  wholly  in 
what  it  buys,  and  hence  not  in  itself  but  in  the  units  of 
money  it  furnishes.  Real  values  have  their  origin  in  wants, 
and  their  limitation  in  the  wants  themselves  and  the  means 
of  supplying  them.  I  perceive,  therefore,  that  limitation  is 
the  essential  quality  which  must  be  sought  in  money,  in  or- 
der to  maintain  steadiness  in  the  units  of  the  other  side  of 
the  equation,  whatever  may  be  said,  thought,  or  believed,  to 
the  contrary. 

N.  S.  B.  You  are  right.  You  now  perceive  clearly  why 
convertibility  is  of  itself  insufficient.  Convertibility  is  es- 
sential, but  the  object  to  be  attained  through  it  is  limitation, 
and  mere  convertibility  falls  short  of  limitation.  To  have 
due  limitation,  your  reserve  must  be  in  harmony  with  out- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  187 

standing  circulation.  I  have  explained  fully  why  banks  of 
issue,  although  not  required  to  keep  a  fixed  ratio  of  reserve, 
maintain  this  limitation ;  not  perfectly,  it  is  true,  but  with 
approximate  sufficiency,  as  they  did  in  Adam  Smith's  time : 
it  cannot  be  done  under  the  deposit-loan  systems  of  Great 
Britain  and  the  United  States.  Our  banks  cannot  be  regu- 
lated "without  a  law  and  proper  supervision,  and  perhaps 
they  cannot  be  regulated  at  all.  With  banks  of  issue  only, 
the  maintenance  of  a  proper  reserve  by  a  few  banks  inures 
to  the  benefit  of  the  country  at  large,  as  well  as  to  the  banks 
which  keep  it,  by  maintaining  steadiness  of  production  and 
prices;  but  a  bank  of  deposit  loan,  however  well  managed, 
and  however  large  its  reserve,  is  powerless  in  that  regard : 
the  limitation  must  be  universal.  The  loans  the  managers 
of  a  few  banks  refuse  to  make  will  certainly  be  made  by  the 
managers  of  less  conservative  banks,  and  production  on  credit 
is  sure  to  proceed  until  checked  by  a  crisis.  Such,  undoubt- 
edly, would  be  the  case  with  banks  of  issue  only  so  far  as 
improvident  loans  are  concerned,  but  loans  of  the  latter 
class  would  be  kept  in  check  to  a  much  greater  extent  by 
the  necessity  of  continually  purchasing  coin  to  replenish  re- 
serve out  of  circulation  at  large.  Metallic  limitation  would 
not  be  perfect,  but  it  would  be  sufficient  to  bring  commercial 
and  industrial  disturbances  to  much  smaller  proportions,  and 
a  consolidated  reserve,  maintained  at  average  within  short 
periods,  would  make  the  limitation  perfect. 

0.  P.  E.  I  have  been  thinking  of  some  method  of  illus- 
trating, in  a  forcible  manner,  this  principle  of  metallic  limita- 
tion. Coins  of  wood,  or  cheap  metal,  or  greenback  notes, 
made  by  private  individuals,  would  answer  the  purposes  of 
money,  if  they  could  be  properly  limited.  If  private  indi- 
viduals were  allowed  to  issue  such  money  as  their  share  of 
"  greenbacks,"  it  would  cease  to  have  value  because  it  would 
have  in  its  material  no  limitation  ;  but  limit  the  issues  by 
law  by  requiring  every  two  dollars  paid  out  to  be  accom- 
panied by  five  dollars  in  gold,  whether  in  or  out  of  a  reserve, 
the  issue  being  made  once  for  all  per  capita,  and  you  would 
have  a  steady  currency :  make  it  merely  convertible,  and  if 


188  MONETARY  AND  INDUSTRLVL  FALLACIES. 

you  could  reach  the  issuers  and  they  were  all  solvent  and 
willing  and  able  to  pay  in  coin,  you  would  have  approxi- 
mate but  not  perfect  steadiness.  Perfect  steadiness  can  arise 
only  from  perfect  limitation,  and  there  could  be  in  this  case 
no  perfect  limitation  of  prices,  and  therefore  no  steadiness  to 
the  highest  degree  attainable,  of  wages,  profits,  interest,  and 
taxes.  I  perceive  now  very  clearly  that  our  logic  has  been 
entirely  at  fault  in  respect  to  money.  Money  is  but  a  proc- 
ess for  the  exchange  of  commodities  and  capital,  and  hence 
all  kinds  of  money  are  in  point  of  science  alike.  If  C.  B.  C. 
and  his  friends,  who  insist  that  there  is  not  money  enough, 
and  that  the  government  ought  to  issue  more,  could  obtain 
the  privilege  of  issuing  their  own  money  before  mentioned, 
it  would  do  no  harm  in  the  end  if  it  could  be  properly  lim- 
ited, and  it  is  precisely  the  same  with  that  of  the  govern- 
ment. The  privilege  would  be  useless  to  them,  however, 
and  they  would  never  avail  themselves  of  it. 

C  B.  0.  My  eyes  have  been  opened  as  well  as  yours, 
Mr.  O.  P.  E.  I  perceive  that  the  unit  theory  overthrows  the 
theory  that  mere  convertibility  is  of  itself  sufficient  without 
reference  to  surrounding  conditions,  and  that  the  demon- 
strated steadiness  (demonstrated  in  this  debate)  of  a  metal- 
lic currency  does  not  exist  without  the  presence  and  union 
of  all  the  complex  elements  which  have  given  rise  to  it. 
The  demonstration  that  the  production  and  not  the  mere 
sale  of  commodities  gives  rise  to  deposits  is  plain.  I  have 
been  mistaken.  I  always  insisted  that  there  could  be  no 
overproduction  :  I  perceive  that  I  was  correct  in  this  opin- 
ion only  when  abstractly  stated,  and  my  error  consisted  in 
not  practically  converting  it  into  the  assertion  that  all  pro- 
duction must,  on  the  average,  be  in  harmony. 

S.  L.  I  always  took  it  for  granted  that  all  money  is  in 
substance  the  same,  if  it  will  enable  one  to  buy.  Upon  the 
industrial  question,  C.  B.  C,  I  suppose,  must  be  right.  If 
there  is  really  money  in  abundance,  and  the  scarcity  lies 
only  in  the  circulation,  I  have  nothing  more  to  say.  We 
must  wait  until  manufacturers  are  ready  to  move,  and  that, 
I  suppose,  they  will  do  as  fast  as  they  get  orders. 


MONETARY   AND   INDUSTRIAL   FALLACIES.  189 

0.  S.  B.  I  have  carefully  watched  this  debate.  It  has 
been  in  some  particulars  methodical,  and  in  others  desultory. 
I  have  been  convinced  for  some  time,  but  O.  P.  E.  and  C. 
B.  C.  have  held  out  to  the  last.  Probably  the  discussion 
has  been  more  effectual  than  it  would  have  been  if  more 
methodical.  The  opinions  of  economists  must  change  as  a 
rule  before  those  of  bankers  and  merchants  can  be  expected 
to  do  so:  I  am  an  exception.  I  trust  the  debate  will  be 
reported,  and  published  by  itself,  if  too  long  to  be  made 
a  part  of  the  book  about  to  be  published  by  a  friend  of  N. 
S.  B. 

N.  S.  B.  It  will  probably  be  too  long  for  that  purpose, 
and  therefore  I  shall  advise  that  it  be  published  separately. 
Perhaps  a  proper  title  would  be  this :  "  Monetary  and  In- 
dustrial Fallacies :  A  Dialogue." 

0.  S.  B.  The  greatest  danger  (for  N.  S.  B.  and  his  friend) 
is  that  of  being  misunderstood.  They  do  not  contend,  and 
none  of  us  believe,  that  the  bullion  in  a  gold  eagle  is  not  con- 
ventionally very  valuable  as  a  unit  of  money  to  buy  with  : 
no  man  in  his  senses  could  suppose  otherwise.  What  we 
affirm  is,  that  a  commodity  is  an  article  of  merchandise  which 
some  people  are  ready  to  sell  because  they  do  not  want  it, 
and  others  are  ready  to  buy  because  they  do,  to  satisfy  some 
real  want ;  and  the  want  which  demands  diamonds  is  as  real 
as  any,  although  not  so  pressing  as  others.  A  diamond  is, 
therefore,  as  real  a  commodity  as  any  other,  but  the  value  of 
all  money  is  conventional,  and  because  it  is  conventional  it 
must  lie  in  the  unit  which  the  bullion  furnishes,  instead  of 
the  bullion  itself.  I  do  not  believe,  nor  does  N.  S.  B.,  that 
there  is  any  such  thing  as  permanent  overproduction,  and  in 
fact  the  use  of  thS  word  is  liable  to  grave  objections,  but  we 
have  no  other  to  supply  its  place.  We  mean  that  absolute 
necessaries  cannot  be  overproduced,  no  matter  how  much 
labor  and  capital  may  be  employed  for  that  purpose,  nor  how 
extensive  and  complete  the  implements  of  agricultural  labor 
may  become.  On  the  other  hand,  we  maintain  that  the  nec- 
essaries of  life,  other  than  these,  are  from  time  to  time  being 
produced  relatively  in    excess,  and    that    to    deny   it   is  to 


190  MONETARY   AND   INDUSTRIAL   FALLACIES. 

deny  what  every  careful  and  competent  observer  must  per- 
ceive, if  the  prejudice  arising  from  the  old  theory,  that  there 
can  be  no  overproduction,  vrill  allow  him :  so  much  for  the 
evidence  of  facts.  That  such  a  result  ought  not  only  to  be 
expected,  but  also  with  constantly  increasing  intensity,  is 
shown  by  the  fact  that  while  there  can  be  comparatively 
little  economy  in  the  consumption  of  absolute,  there  can  be 
very  great  in  that  of  relative  necessaries,  and  that  while 
there  can  be  no  overproduction  of  the  absolute,  the  improve- 
ments in  the  implements  of  agricultural  labor,  and  the  still 
greater  improvements  in  those  of  other  labor  and  in  manu- 
facturing processes,  are  constantly  diminishing  the  amount 
of  hand  labor  required  in  all  quarters  of  the  grand  field  of 
production.  The  question  arises.  Is  this  advance  a  blessing 
or  a  curse  ?  Is  it  progress  or  retrogression  ?  We  believe  it  to 
be  a  blessing  and  we  believe  it  to  be  progress,  because  it  is 
the  liberation  of  labor  through  a  constantly  increasing  control 
over  natural  forces,  and  the  labor  thus  liberated  can  be  set  at 
other  work ;  for  instance,  at  making  better,  more  substantial, 
and  healthier  houses,  in  drainage,  in  road-making,  and  in 
farming.  National  wealth  is  a  question  of  condition,  and  if 
fewer  hands  are  needed  than  before  for  manufacturing  and 
farming,  more  can  be  spared  in  the  United  States  to  buy  and 
improve  farms  of  their  own.  The  real  question,  then,  is,  how 
surplus  labor,  whether  in  the  United  States  or  in  countries 
like  Great  Britain  with  which  they  trade  (but  Great  Britain 
particularly),  can  be  forced  by  emigration  and  other  means 
to  its  pi'oper  place.  There  is  one  thing  certain,  that  if  there 
were  no  such  thing  as  a  banking  crisis  there  would  be  no  such 
thing  as  a  commercial  or  industrial  crisis,  except,  perhaps,  in 
a  very  mitigated  form.  It  is  equally  certain  that  banking 
crises  arise  from  bank  loans.  It  follows,  therefore,  that  if 
bank  loans  could  be  and  were  regulated,  there  would  be  no 
banking,  and,  at  the  worst,  but  a  mitigated  form  of  commer- 
cial and  industrial  crises.  It  is  equally  certain  that  the  volume 
of  bank  loans  show  an  equal  volume  of  production  on  credit, 
and  that  they  raise  prices  as  long  as  they  are  being  made,  and 
thus  conceal,  until  a  crisis,  the  heavy  losses  production  on 


MONETARY  AND   INDUSTRIAL   FALLACIES.  191 

credit,  liirgely  in  excess  of  markets,  always  brings  in  the  end. 
All  this  excess  and  the  loss  and  demoralization  which  ensue 
arise  from  this  concealment.  Excess  cannot  be  indefinitely 
continued,  because  it  is  impossible  on  the  part  of  one  half  of 
all  the  producers,  and  hence  it  must,  on  the  average,  be  impos- 
sible on  the  part  of  the  other  half.  To  regulate  that  part  of 
production  on  credit  which  is  carried  on  by  bank  loans  is 
not  to  diminish,  but,  on  the  average,  to  increase  it. 

N.  S'.  B.  You  ai-e  right :  regulation  would  increase  the 
total,  and  reduce  the  cost  of  living.  The  United  States  must 
supply  home  before  they  seek  foreign  markets,  and  to  do 
this  they  must  reduce  the  real  expenses  of  living:  I  say  real 
in  contradistinction  to  nominal  or  money  expenses.  The 
cost  of  living  is  enormously  increased  by  excessive  produc- 
tion on  credit :  it  is  not  a  mere  question  of  the  volume  of 
money.  If  C.  B.  C.'s  "greenback"  friends  had  the  privilege 
of  issuing  their  own  money,  as  before  suggested,  it  would 
amount  to  nothing  in  the  absence  of  banks,  because  no  more 
production  could  take  place  in  consequence.  The  losses  from 
excessive  or  ill-balairced  production  through  bank-loans,  when 
the  reserve  is  kept  merely  at  the  convertible  point,  as  it  al- 
ways hitherto  has  been,  occur  in  this  manner:  As  production 
on  credit  advances,  loans  and  deposits  increase  and  prices 
rise  :  the  second  million  of  j)roducts  costs  more  than  the  first, 
and  the  third  more  than  the  second,  not  only  in  nominal,  but 
real  prices.  It  costs  more  in  dollars,  and  it  also  costs  more 
in  absolute  and  all  other  necessaries  consumed.  While  the 
production  is  going  on,  the  increased  cost  of  living  is  repre- 
sented in  an  increase  of  dollars  by  loans  :  when  the  crisis 
in  production  is  reached,  and  the  prices  of  the  manufactured 
goods  fall,  bank  loans  must  be  paid  in  monej'',  and  the  dif- 
ference between  sales  and  cost  of  production  reckoned  in 
dollars  is  real  loss.  The  result  is  the  same,  therefore,  as  it 
would  be  if  all  exchanges  and  loans  were  in  barter  and  not 
in  money,  provided  the  manufacturers  could  borrow  absolute 
and  other  necessaries  to  produce  to  the  same  extent  they  act- 
ually can  with  money  :  their  losses  would  be  of  the  same 
character.    In  point  of  fact,  however,  there  would  be  no  crisis 


192  MONETARY   AND   INDUSTRIAL  FALLACIES. 

in  that  case,  because  loss  by  the  excess  and  inability  to  hold  it 
would  be  demonstrated  at  a  much  earlier  period.  The  prac- 
tical effect  would  be  that  more  would,  on  the  whole,  be  pro- 
duced, and  the  cost  of  living  would  be  much  less.  Removing 
the  veil  which  money  and  bank  loans  cast  over  the  whole 
process,  this  is  really  what  we  all  have  in  view,  in  proposing 
a  limitation  of  bank  loans  by  reserve. 

0.  S.  B.  You  learned  the  new  theory  of  money  and 
production  which  you  have  developed  in  this  debate,  Mr.  N. 
S.  B.,  from  your  friend,  who  is  the  author  of  the  book  you 
referred  to.  You  are  a  practical  man  of  business,  and  so  am 
I.  You  converted  me  to  your  opinions  at  an  early  stage  of 
this  debate.  The  reason  for  this  is  probably  my  practical 
knowledge,  and  my  comparative  indifference  to  what  are 
called  theories.  I  know  that  crises  come  periodically,  whether 
paper  money  is  convertible  or  not,  but  having  witnessed 
three  of  them  in  the  United  States,  which  are  more  partic- 
ularly distinguished  by  epochs  than  any  other  events  in 
monetary  and  industrial  history,  —  I  refer  to  those  of  1837, 
1857,  and  1873,  with  others  which  have  intervened,  of  a 
comparatively  mild  character,  —  I  affirm  that  all  experience 
and  analogy  show  that  there  must  be  a  common  cause. 
Great  numbers  of  men  are  seeking  work  and  cannot  obtain 
it,  and  millions  are  being  paid  out  for  wages  and  raw  mate- 
rial whose  resulting  products  will  not  pay  cost,  in  order  to 
keep  labor  employed ;  and  because  to  set  the  labor  employed 
adrift  would  disorganize  it,  and  also  cause  waste  of  fixed  cap- 
ital. It  is  asainst  common  sense  and  reason  to  maintain 
that  these  are  the  necessary  results  of  producing  on  credit, 
and  that  they  are  unavoidable  :  they  are  not  unavoidable  ; 
they  are  accidental ;  and  the  accident  is  temporary  excess. 
How  does  that  excess  arise  ?  is  the  question.  There  is  but 
one  explanation  which  satisfies  me,  and  that  is  the  one  estab- 
lished by  this  debate.  I  perceive  that  I  was  always  right  in 
maintaining  that  there  could  be  no  such  thing  as  overpro- 
duction on  the  average,  because  there  can  be  no  excess  in 
the  absolute  necessaries  of  life.  The  producers  of  these  con- 
stitute at  least  half  of  all  the  producers  in  the  world  in  point 


MONETAUV   AND    INDUSTIUAL   TALLACIES.  193 

of  value,  and  if  excess  be  possible  on  the  part  of  other  pro- 
ducers, as  unquestionably  it  is,  it  cannot  long  be  maintained. 
I  am  satisfied  that  a  rectification  of  the  latter  by  the  former 
is  the  crisis  which  is  now  upon  us,  and  a  plain,  practical  proof 
of  this  fact  can  be  obtained  for  us  all  by  the  answer  to  this 
question :  If  twenty-five  per  cent,  of  all  the  laborers  in  Great 
Britain,  Germany,  and  the  United  States  during  the  last  ten 
yeai-s  had  been  settled  on  the  new  lands  of  the  United  States, 
producing  absolute  necessaries  of  which  there  can  be  no  sur- 
plus, and  consuming  relative  necessaries  of  which  there  is  a 
surplus,  should  we  have  suffered  from  the  present  crisis  ? 
Certainly  not,  because  we  would  have  decreased  surplus  by 
twenty-five  per  cent,  and  increased  produce,  which  is  rela- 
tively short,  by  a  like  amount.  We  should  have  produced 
the  same  result  relatively  as  would  now  be  produced  by  in- 
creasing to  the  amount  of  fifty  per  cent,  the  consumption  of 
relative  necessaries,  which  are  in  excess.  That  the  United 
States  are  capable  of  taking  the  lead  as  producers  in  this  line 
in  due  time,  there  is  no  room  for  doubt,  unless  their  great 
productive  powers  are  converted  into  a  curse  instead  of  a 
blessing  by  an  unsteady  currency.  A  science  of  money  and 
production  founded  on  absolute  demonstration  is  what  we 
need,  and  I  think  we  have  it  in  this  debate,  I  perceive  that 
my  old  opinions  were  in  a  certain  sense  (subjectively)  true, 
and  I  can  now  furnish  complete  demonstration  of  the  truth  of 
the  common  opinion  that  metallic  money  is  the  only  perfect 
money  in  the  world,  by  proving,  strange  as  it  may  sound, 
that  the  reason  heretofore  given  for  the  fact  is  false,  because 
it  has  been  showm  that  even  metallic  money  is  not  a  com- 
modity. Its  perfection  lies  not  in  the  metal,  but  in  the  al- 
most mathematical  accuracy  of  the  limitation  of  the  units  of 
money  which  metal  can  furnish,  in  the  limited  aimual  supply 
of  the  metals,  and  the  very  small  ratio  furnished  by  divid- 
ing that  supply  by  all  the  metal  throughout  the  commercial 
world  in  the  shape  of  coin.  It  is  exactly  for  the  reason  that 
money  is  not  and  cannot  be  a  commodity  that  this  perfec- 
tion exists.  Perfection,  as  applied  to  money,  means  the  most 
perfect  limitation  of  the  units  possible.     This  perfection  will 

13 


194  JIONETARY  AND   INDUSTRIAL  FALLACIES. 

never  be  understood  and  can  never  be  taught  in  an  intelligi- 
ble manner  until  it  becomes  a  conceded  fact  that  the  value 
of  metallic  money  lies  not  in  the  metal,  but  in  the  unit ;  not 
in  the  debt  due  by  government  or  bank,  but  in  the  unit  lim- 
ited by  the  debt.  Proportions  of  value  between  commodities 
in  barter  must  be  expressed  in  units,  and  the  use  of  money, 
scientifically  stated,  cuts  direct  barter  in  two,  and  substitutes 
for  it  indirect  barter  with  improvements,  by  giving  those 
units  a  local  habitation  and  a  name,  and  making  the  action 
and  reaction  of  mutual  wants  bring  to  every  buyer  the  com- 
modity he  desires,  when  and  where  he  would  have  it.  The 
use  of  money  may,  therefore,  be  called  a  system  of  indirect 
barter,  in  point  of  results.  With  these  explanations,  scien- 
tists may  safely  teach,  if  they  choose,  that  metallic  is  the 
only  real,  or,  indeed,  if  they  wish  to  put  it  so,  the  only  money 
in  the  world. 

But  the  unit  theory  is  indispensable,  if  they  undertake  to 
explain  the  nature  and  object  of  metallic  banking  reserve. 
Because  the  perfection  of  metallic  money  consists  only  in  the 
perfect  limitation  of  the  number  of  money  units,  and  money, 
not  being  a  commodity,  can  be  used  only  to  exchange  com- 
modities, the  limitation  ought  to  embrace,  not  only  the  actual 
number  of  units  in  existence,  hut  the  use  of  them  likewise^  in 
the  character  of  wages  in  equations  of  exchange  for  labor  by 
the  aid  of  loans  out  of  bank  reserve,  in  excess  of  their  use  in 
equations  of  exchange  for  the  products  of  labor,  which  return 
the  units  back  to  bank  reserve.  If  the  units  are  taken  out 
of  the  reserve  by  buyers  and  paid  to  sellers,  who  put  them 
back  again  the  same  day,  very  great  economy  of  coin  can  be 
practiced,  and  the  surplus  used  in  loans.  What  becomes  of 
limitation  under  such  conditions  ?  Convertibility  continues, 
undoubtedly,  and  whatever  may  be  the  depreciation  or  loss 
in  power  of  limitation,  convertibility  is  believed  to  be  suffi- 
cient, because  and  only  because  of  the  illusion  created  by  the 
commodity  theory.  O.  P.  E.  must  now  clearly  perceive  that 
he  and  other  American  economists,  following  as  they  do  their 
great  predecessor,  M.  J.  B.  Say,  would  be  more  logical  if 
they  would  fall  back  upon  the  (British)  theory  of  Smith  and 


MONKTAUV   AND   IXDUSTlilAL   FALLACIKS.  195 

Ricardo,  —  that  the  cost  of  the  metal  in  hibor  is  the  measure 
of  its  value.  If  metal  had  never  been  placed  in  banking  re- 
serve for  want  of  banks,  that  theory,  as  an  effect  and  not  a 
cause,  might,  although  utterly  false,  be,  without  any  damage, 
considered  as  substantially  true,  because  aside  from  banking 
reserve  the  metallic  unit  comes  nearer  maintaining  absolutely 
unvarying  purchasing  power  or  exchangeable  value  than  any 
commodity  can,  as  I  have  just  now  stated.  To  demonstrate 
the  truth  of  the  unit  theory  to  a  mathematical  certainty, 
as  has  been  done  in  this  debate,  is  absolutely  necessary,  in 
order  to  establish  the  function  of  limitation  as  the  true  end 
and  aim  of  the  common  sense  of  mankind  in  choosinfir  and 
adhering  to  metallic  money,  although  they  are  universally  at 
fault  when  they  attempt  to  give  the  reason. 

0.  P.  E.  Do  we  not  put  the  proposition  too  strongly,  in 
calling  the  certainty  mathematical  ? 

N.  S.  B.  Not  one  whit.  If  all  kinds  and  forms  of  money 
are  expressed  indifferently  as  units  in  all  equations  of  ex- 
change, they  are  units,  because  being  conventional  they  can 
by  no  possihUity  be  anything  else.  Hence,  if  all  nations 
should  give  up  the  use  of  gold  and  silver,  because  some  one 
had  discovered  a  method  of  limiting  paper  money  efficiently, 
and  paper  were  adopted  generally,  these  metals  would  sink 
to  less  than  one  quarter  of  their  present  value.  Sound  pa- 
per money  duly  limited  would  have  as  high  value  as  the 
metal  itself  can  have :  the  impossibility  of  limiting  it  con- 
stitutes its  principal  defect.  Hence  I  say  that  with  limi- 
tation duly  and  properly  secured  in  the  manner  indicated, 
the  use  of  bank-notes  and  checks  may  and  ought  to  be  ex- 
tended as  far  as  possible  nationally,  confining  the  actual  use 
of  the  metal  to  international  exchan<xes. 

0.  S.  B.  The  most  satisfactory  application  of  the  unit 
theory  for  me  is  to  show  by  its  means  how  production  on 
credit  becomes  more  costly  in  proportion  to  its  increase  over 
and  above  the  demands  of  cash  markets,  and  that  the 
measure  of  its  increase  is  the  increase  of  deposits.  The 
theory  furnishes  a  satisfactory  explanation  of  the  reason  why 
mere  convertibilitv,  which  Adam  Smith  and  all  the  British 


196  MONETARY   AND   INDUSTRIAL  FALLACIES. 

and  American  writers,  O.  P.  E.  hitherto  inckided,  have 
always  thought  suffficient,  is  wholly  inadequate  without  keep- 
ing it  always  at  the  point  where  limitation  is  added  to  con- 
vertibility. 

iV".  S.  B.  It  shows  also  that,  logicallj^  writers  like  O.  P. 
E.  and  C.  B.  C,  and  bankers  like  you,  Mr.  O.  S.  B.,in  time 
past,  and  the  people  who  clamor  for  more  government  paper 
money,  are  not  far  apart.  The  principal  difference  between 
you  and  O.  P.  E.,  on  the  one  hand,  and  C  B.  C.  and  the 
people  referred  to,  on  the  other,  is  that  you  and  O.  P.  E. 
have  never  carried  your  theories  out  in  practice,  but  have 
alwaj^s  refused  to  do  so.  If  credit  is  sufficient  to  produce 
merchandise  and  sell  it  at  wholesale,  it  follows  logically  that 
it  is  good  enough  at  retail.  What  right  have  you,  in  point 
of  consistency,  to  find  fault  with  paper  money  theorists,  as 
you  call  them,  like  C.  B.  C.  and  his  followers  ?  If  units  of 
bank  credit  without  gold  are  good,  units  of  government 
credit  are  better,  provided  they  can  be  used,  if  you  are  right 
in  maintaining  that  overproduction  is  impossible,  for  govern- 
ment credit  is  undoubtedly  stronger  than  any  bank  credit 
can  be.  You  are  therefore  logically  committed  to  the  use  of 
government  paper,  but  common  sense  and  the  experience  of 
mankind  stand  in  your  way;  and  why?  Because  the  unit 
theory  of  money  and  the  theory  of  overproduction  are  both 
true. 

0.  S.  B.  You  are  right,  but  let  us  hear  your  reasons 
briefly. 

N.  S.  B.  Of  course  government  credit  must  be  better  than 
that  of  any  bank :  if  not,  why  secure  bank-notes  with  its 
debt  as  collateral  security?  But  governments  cannot  turn 
bankers,  for  what  does  a  banker  in  effect  loan  ?  Undoubtedly 
goods  of  all  kinds,  which  producing  consumers  and  their 
laborers  require  while  at  work,  to  feed,  clothe,  and  shelter 
themselves.  Suppose  the  United  States  were  to  issue  one 
hundred  millions  of  additional  paper  money  and  distribute  it 
per  capita :  what  possible  effect  could  this  have  in  the  way 
of  supporting  production?  C.  B.  C.  has  hitherto  confounded 
reams  of  paper,  duly  signed  and  distributed,  with  goods  and 


MONETARY  AND   INDUSTRIAL   FALLACIES.  197 

chattels.  Banks  really  lend  the  latter  and  are  partners  with 
those  who  borrow  them  by  means  of  bank  loans.  While, 
however,  the  unit  theory  is  essential  in  order  to  demonstrate 
the  falsity  of  the  old  tlieoiy  of  O.  P.  E.  (that  banks  deal  in 
credits  and  that  those  credits  are  not  money),  the  old  theory 
of  mercantile  value  in  metallic  money  as  bullion,  which 
practically  never  will  and  never  ought  to  be  abandoned,  is 
one  of  the  most  important  elements  of  the  function  of  limita- 
tion. 

0.  P.  JEJ.     Limitation  of  what  ? 

N.  iS.  B.  Of  all  other  kinds  of  money.  The  late  issue  of 
inconvertible  bank-notes  by  the  Bank  of  France  made  the 
total  of  note  issues  about  equal  to  all  the  silver  and  gold  in 
France.  Had  all  the  metallic  money  in  private  liands  circu- 
lated, or,  in  other  words,  had  it  been  paid  out  and  used  as 
freely  as  the  notes,  prices  certainly  would  have  been  very 
much  expanded  and  advanced,  but  the  metal  retired  into 
reserves  and  the  paper  circulated,  as  did  the  units  of  bank 
credit  of  the  Bank  of  Amsterdam  :  the  only  essential  differ- 
ence was  that  in  France  there  were  millions  of  metallic 
reserves  instead  of  one.  The  metal  to  the  extent  of  its  total 
limited  the  notes.  There  was  no  limitation  in  point  of 
science,  it  is  true,  because  the  fact  that  the  notes  and  the 
metal  corresponded  very  nearly  in  volume  was  probably  a 
coincidence.  Had  the  issue  of  paper  been  carried  much 
farther,  probably  its  effect  on  prices  would  have  been  appar- 
ent. Upon  the  same  principle,  one  hundred  millions  of  gold 
were  retired  in  the  United  States  in  1857,  and  both  gold  and 
silver  more  or  less,  more  than  one  hundred  years  ago  in 
Scotland  after  the  Bank  of  Ayr  had  begun  to  loan  freely. 
What  we  all  must  endeavor  to  do  henceforth  is  to  place  this 
function  of  limitation  possessed  by  metallic  money  when  in 
the  hands  of  the  people  at  large  upon  scientific  grounds,  by 
fixing  some  definite  point  for  the  economy  of  mt!tallic  bank- 
ing reserve  to  stop.  When  that  point,  universally  agreed 
upon  or  at  least  universally  enforced,  is  reached,  hoarded 
metal  will  nudvC  its  appearance,  and  give  us  a  scientific  limi- 
tation to  the  use  of  all  other  forms  of  money,  whether  it  con- 


19S  MONETARY   AND   INDUSTRIAL  FALLACIES. 

sist  of  bank-notes  only,  or  notes  and  bills  of  exchange  and 
checks,  if  we  assume  these  to  be  the  money  used  instead  of 
the  mone}'  in  the  reserve.  We  shall  then  have  a  universal 
limitation  of  all  forms  of  money,  and  thereby  of  loans,  and, 
as  a  result,  of  prices  and  of  production  on  credit. 

0.  P.  E.     You    are  right.     It  is  astonishing  how  differ- 
ently this  matter  of  production  on  credit  appears  to  me  since 
I  have  learned  the  true  function  of  metallic  money,  or,  as  I 
might  put  it,  the  reason  why  that  kind  of  money  is  the  most 
perfect.     In  fact,  I  need  not  change  my  nomenclature  in  that 
respect.     The  most  important,  in  fact  I  may  say  the  only 
imjjortant  attribute  of  money,  being  that  of  steady  limitation 
of  units,  gold  and  silver,  in  view  of  the  large  accumulations 
of  each,  may  well  be  considered  as  the  only  real  money  in 
the  world  when  they  are   so  distributed  that  their  proper, 
function  of   limitation  is   not  interfered  with.     Proper   dis- 
tribution does  not  imply  that  the  metal  should    not  be  in 
reserve,  by  any  means,  because  it  is  in  millions  of  reserves 
when  it  is  distributed  among  millions  of  people,  and  if  these 
reserves  were  all  consolidated  into  one,  and  the  money  paid 
out  by  checks  without  ever  actually  leaving  the  grand  re- 
serve, the  principle  would  be  the  same,  because  the  checks 
would  be  limited  by  the  metal  standing  to  the  credit  of  each 
owner  :  the  units  of  checks  would  have  a  perfect  limitation 
in  the  units  of  metal  belonging  to  each  depositor  and  con- 
stituting the  grand  reserve.     The  same  rule  would  apply  if 
the  managers  of  the  grand  reserve  should  loan  three  quarters 
of  it,  but  the  principle  of  limitation  demands  that  they  stop 
their  loans  at  some  definite  point ;  in  short,  that  they  limit 
the   economy   of   metal.     This,  in   my  opinion,  is   the   true 
science  of  money,  because  it  is  mathematically  certain  that 
the  value  of  all  money  is  conventional,  and  hence  the  value 
lies  in  the  unit  and  not  in  the  metal.     With  international 
mints  coins  might  vary  in  weight  if  the  principle  of  limita- 
tion were  adhered  to. 

0.  S.  B.  How  well  the  theory  helps  to  explain  overpro- 
duction !  Overproduction  on  the  average  being  impossible, 
we  have  to  deal  only  with  temporary  overproduction.     The 


MONETAllY   AND   INDUSTRIAL  FALLACIKS.  199 

annuiil  production  of  wheut  being    nearly  balanced  by  the 
annual  consumption,  bank  loans  to  the  buyers  of  wheat  un- 
doubtedly swell  deposits  at  certain  seasons  when  such  loans 
are  in  demand,  but  instead  of   indefinitely  increasing,  they 
diminish,  by  payments  through  the  exchanges  of  wheat  for 
manufactured    goods,  the   loans   made  to    the   producers  of 
cloth,  iron,  etc.     It  was  the  constantly  increasing  excess  of 
the  domestic  added  to  the  foreign  production  of  these  goods 
which  came  to  this  market,  over  and  above  the  production 
of    such   things    as  wheat,   wliich    between  1854  and   1857 
swelled  deposits    forty-two    millions    under   convertible   but 
not  duly  limited  bank-notes,  and  economy  without  limit  of 
metallic  reserve  in  commercial  centres.     The  forty-two  mill- 
ions did  not  represent  all   the  unbalanced    production,  be- 
cause a  large  amount,  wdiich  this  increase  of  deposits  taken 
by    itself   Avould    not    demonstrate,    was    rendered    possible 
through  savings  of   labor  deposited  in    savings   banks,  and 
a  large  portion  of  the  profits  on  production  whose  products 
had  not  yet  found  cash  buyers  must  be  added  in  order  to 
perceive  the  vast  accumulation.     All  things  may  be  jn-oduced 
so  as  to  create  a  want  of  harmony  of  production,  except  the 
absolute  necessaries  of  life  and  the  precious  metals.     It  is 
impossible  to  have  an  excess  of  these.     ]\[ining  for  petroleum 
has  become  within  the  last  few  years  a  very  important  in- 
dustry :  it  is  as  impossible,  on  the  average,  to  have  an  over- 
production of  this  mineral  as  of  any  other  relative  necessary, 
but  unrestricted  bank  loans  have  done  it  great  injury  under 
our  irredeemable  money  system,  and  will  continue  to  do  so 
even  after  redemption,  without  a  due  metallic  limitation  of 
bank  loans,  which  of  course  we  need  not  expect  at  present, 
if  indeed  it  be  ever  possible.     Tools  and    supplies  being  a 
very  important  part  of  the  outlay  in  this  business,  a  note 
given  for  the  purchase  of  them  can  be  readily  discounted  in 
bank,  and  the  dealer  can  then  purchase  more  tools  and  sup- 
plies.    This  is  precisely  the  same  thing  as  if  the  tool-makers 
had  borrowed  themselves,  because  the  total  amount  of  their 
production  is  the  same  in  each  case  :  it  is  immaterial  who 
borrows    the    money   which    sustains   production  on  credit, 


200  MONETARY   AND   INDUSTRIAL  FALLACIES. 

whether  it  be  the  first  producer  who  originates,  or  the  second 
producer,  who  produces  additional  value  by  distributing,  and 
the  consequences  in  this  case  are  temporary  overproduction  of 
mineral,  increased  cost  of  production  both  of  mineral  and  tools, 
and  consequent  low  prices  of  mineral.  It  is  a  matter  of  doubt, 
whether  the  producers  of  mineral  have  not  paid  out  to  labor 
for  tools  and  work  at  mining  more  than  producing  capital 
has  received  in  profits,  and  unlimited  loans  have  helped  to 
increase  the  loss.  Probably  labor  at  mining  for  the  precious 
metals  has  cost  more  than  the  metals  are  worth,  but  because 
the  metals  are  used  as  money  and  at  the  same  time  converted 
by  labor  into  commodit}',  —  the  commodity  use  not  being  one 
of  absolute  necessity,  like  that  of  wheat,  —  their  value,  in  the 
absence  of  all  economy,  or  with  a  perfectly  limited  economy, 
would  be  uniform,  subject  to  only  one  cause  of  variation,  — 
the  variation  in  the  ratio  of  total  commerce  to  total  metal. 
Convertibility  alone  cannot  furnish  a  perfect  limitation  to 
loans  of  bank-notes  even  in  the  absence  of  deposit  loans :  this 
is  shown  by  the  Bank  of  Ayr,  and  some  other  banks  of 
Smith's  time,  although  mere  convertibility  approximates  in 
such  cases  to  limitation.  But  convertibility  stops  far  short  of 
limitation  where  banks  sometimes  loan  as  banks  of  issue  and 
sometimes  as  banks  of  deposit  and  discount.  Limitation  fails 
under  the  convertible  system  of  the  United  States  as  it  did  in 
Great  Britain  prior  to  1844.  It  fails  in  limiting  bank-notes 
in  the  way  of  loans  and  volume  ;  and  it  fails  in  respect  to 
limiting  the  economy  of  metal  in  metallic  banking  reserve, 
for  even  in  Great  Britain  since  1844  there  has  been  no  defi- 
nite limit  to  economy.  There  being  no  limit  to  economy  of 
metal  in  Great  Britain,  the  only  limit  to  production  on  credit 
by  the  aid  of  bank  loans  is  the  periodical  crisis  in  production 
itself.  The  range  of  prices  is  not  as  high,  perhaps,  as  it  was 
before  1844,  because  the  total  circulation  outside  of  bank  re- 
serve can  never  exceed  the  metal  itself  at  any  one  time.  To 
this  extent  metallic  limitation  avails  in  the  way  of  setting 
bounds  to  the  range  of  variation  in  prices  but  not  to  the  ratio 
of  variation.  Before  1844  in  Great  Britain,  and  always  in 
the  United  States,  deposit  loans  made  convertibility  of  bank- 


MONETARY   AND   INDUSTRIAL   FALLACIES.  201 

notes  —  imperfect  at  best  in  itself  mtliout  such  loans  — 
vastly  mure  imperfect  by  standing  in  the  way  of  their  re- 
demption in  coin.  Perfect  metallic  limitation  of  all  loans 
would  bring  ])rodiicers  nearer  to'market.  In  short,  it  would 
not  allow  them  to  produce  in  excess  of  markets  as  they  now 
do.  The  producers  of  the  United  States  will  be  able  to  find 
markets  abroad,  after  they  have  demonstrated  their  ability 
to  supply  their  own.  Until  that  time  it  is  idle  to  talk  of 
foreign  markets,  and  it  is  equally  idle  to  talk  of  controlling 
home  markets  without  a  steady  currency  duly  limited  by 
metal. 

JV.  S.  B.  You  are  right :  we  are  all  now  of  one  mind. 
We  have  learned  what  money  is :  we  have  learned  what 
production  on  credit  is,  and  the  danger  from  loss  through 
excess.  We  have  also  learned  that  production  on  credit  is 
essential  to  the  progress  of  nations,  and  that  while  natural 
inequalities  of  wealth  are  essential  to  this  object,  the  ex- 
treme exaggeration  of  them  by  the  use  of  money  without 
any  metallic  limitation  is  in  the  end  disastrous. 

0.  S.  B.  We  are  all  of  one  opinion,  as  you  say,  ]\Ir.  N. 
S.  B.,  but  we  can  scarcely  realize  how  difficult  it  will  be  to 
bring  economists  and  bankers  generally  to  the  same  opinion. 
They  will  agree  with  us  after  a  time,  I  have  no  doubt,  but 
it  may  be  a  long  time.  Even  O.  P.  E.  would  hesitate  about 
writing  a  new  book  admitting  the  erroi's  of  his  first. 

0.  P.  E.  You  are  right,  Mr.  O.  S.  B.,  I  am  hardly 
prepared  to  do  so  yet,  and  still  I  admit  the  demonstration 
of  those  errors  to  be  complete.  The  science  of  political 
economy  ought  to  be  the  establishment,  by  the  most  perfect 
form  of  demonstration  possible,  of  those  general  causes  or 
forces  which  underlie  all  social  movements  in  respect  to  the 
production,  the  distribution,  and  the  consumption  of  the 
fruits  of  labor  and  capital,  and  the  loss  and  gain  of  labor 
and  capital  while  they  furnish  the  fruits. 

Statistics  and  other  details  are  important  in  the  way  of 
proving  or  helping  to  prove,  by  way  of  induction,  as  it 
is  sometimes  called,  the  principles  of  the  science.  Cause 
and  effect    are  but  the   order  in  which  phenomena  unfold 


202  :\IONETAEY   AND   INDUSTRIAL   FALLACIES. 

tlieniselves.  We  are  at  fault  in  not  going  far  enough  with 
this  kind  of  proof.  Political  economy  is  advanced  only  to 
that  point  where,  like  astronomy  before  the  establishment 
of  tlie  Coperniean  system,  it  takes  apparent  for  actual  phe- 
nomena. This  astronomy  did  in  maintaining  that  the  ap- 
parent movement  of  tlie  heavenly  bodies  is  a  real  one.  To 
all  appearance  they  move,  and  our  language  and  our  ac- 
tions still  indicate  that  the  apparent  is  the  real  movement. 
It  is  so  with  money  and  commerce,  and  not  only  so,  but  we 
actually  believe  what  our  language  imports.  Demonstration 
by  development,  by  mathematical  proof,  and  by  induction, 
shows  beyond  doubt  that  money  of  all  kinds  is  conventional, 
and  merely  a  process  to  aid  in  the  production  and  distri- 
bution of  wealth,  and  yet  it  is  impossible  to  resist  the  illu- 
sion that  the  metal  of  a  gold  eagle,  which  is  worth  its 
weight  in  gold  to  exchange  for  money  with  bullion  dealers 
for  the  purpose  of  being  beaten  into  gold  leaf,  or  manufact- 
ured into  plate,  watch  cases,  and  jeweh'y,  has  not  at  the 
same  time  a  mercantile  value  as  money.  Show  by  develop- 
ment to  a  degree  of  certainty  which  may  be  called  moral, 
that  barter  implies  comparison,  and  comparison  unites  to 
make  it ;  that  the  next  stage  of  it  is  a  localization  and  lim- 
itation of  the  units  as  proved  by  the  practice  of  savages, 
and  that  Avhatever  form  money  may  take  in  future  stages, 
the  principle  must  be  the  same  ;  show  by  mathematical  dem- 
onstration that  a  thing  of  universal  and  conventional  value 
must  necessarily  in  all  equations  of  exchange  between  buy- 
ers and  sellers,  not  only  take  but  always  maintain  the  char- 
acter of  abstract  units  of  exchange,  and  that  any  commodity, 
—  even  wheat,  —  thus  used,  would  necessarily,  as  money, 
take  the  same  form  ;  show  by  induction,  through  analysis, 
that  the  subject  of  money  and  its  uses  is  one  of  the  most 
complex,  instead  of  the  most  simple,  as  generally  supposed, 
and  that  demonstration  by  this  process  leads  to  the  same 
conclusions,  and  still  people  will  never  stop  speaking  of 
money  as  having  mercantile  value  and  acting  upon  that 
idea. 

C.  B.   C.     Evidence  by  analysis  and  induction  ought  to 


MONETARY   AND   INDUSTRIAL   FALLACIES.  203 

be  tlie  most  satisfactory,  because   there  can   be  no  mistake 
about  the  facts. 

N.  S.  B.  I  have  given  you  that  kind  of  proof  in  abun- 
dance. Of  all  complex  subjects  in  social  science,  money  is 
the  most  complex :  if  I  may  be  allowed  the  expression,  it 
fairly  bristles  with  complexity,  althougli  it  has  always  been 
called  very  simple.  Men  have  worked  with  unconscious 
wisdom  in  adopting  and  adliering  to  gold  and  silver  as  the 
best  possible  form  of  money,  and  we  have  all  acted  with 
unconscious  ignorance  in  supposing  that  under  no  circum- 
stances can  they  lose  it.  The  greater  relative  weight  of  sil- 
ver and  its  consequent  relative  cheapness  cause  more  of  it  to 
be  consumed  as  a  commodity  than  of  gold,  but  the  principal 
use  being  that  of  money,  relative  weights  determine  the 
values  of  gold  and  silver  bullion,  reckoned  in  each  other.  In- 
trinsic qualities  are  thrown  out,  just  as  they  would  be  from 
wheat  and  rye,  if  and  when  used  as  money,  because  valuation 
must  be  by  units,  and  there  is  no  simple,  certain  way  of  ob- 
taining units  except  by  weight.  If,  in  settling  bullion  values 
of  gold  and  silver,  reckoned  in  each  other  in  the  London 
market,  the  buyers  and  sellers  had  to  stop  and  estimate  the 
uses  to  which  the  two  metals  could  be  put,  as  commodities, 
as  well  as  the  relative  weights  of  each  thrown  and  likely  to 
be  thrown  upon  the  market,  they  could  never  be  used  as 
raonev:  all  relations  but  those  of  weiirht,  out  of  which  to 
make  units,  must  be  eliminated  from  the  equations  of  ex- 
change between  bullion  buyers  and  bullion  sellers,  if  the 
metals  are  to  be  used  as  universal  equivalents  in  exchange. 
Monetizations,  demonetizations,  and  remonetizations  throw 
for  a  time  more  or  less  of  either  metal  in  excess  of  the  usual 
quantity  upon  the  market.  Standard  is  imaginary,  and  hence 
there  is  neither  double  nor  single  standard  ;  for  a  unit  cannot 
be  a  standard.  International  mints,  if  there  were  no  national 
ones,  could  fix  the  barter  or  bullion  rates  between  silver  and 
gold  sti-adily  at  any  point  short  of  that  which  would  carry 
all  of  either  metal  mined  into  use  as  commodity,  and  they 
could,  as  I  have  shown,  make  every  coin  different  from 
another  in  weight,   as  long  as  they  maintained   the   same 


201  iMOXETARY  AND   INDUSTRIAL   FALLACIES. 

number  of  units.    Units  of  bank  and  government  debt,  if  con- 
vertible (and  sometimes  even  when  inconvertible),  are  worth 
their  face  in  metal  even  after  expanding  the  circulation,  or 
multiplying  the  number  of  all  money  units,  although  they 
have  actually  depreciated  the  exchangeable  value  of  all  the 
gold  and  silver  in  the  world  as  money,  and  therefore  as  com- 
moditv.     The  evidence  to  this  effect  is  overwhelming  and 
conclusive.    Premium  on  metallic  money,  reckoned  in  incon- 
vertible money,  is  therefore  but  an  accident ;  were  it  other- 
wise, metallic  money  would  never  depreciate  with  paper,  but 
would  always  command  a  premium  when  paper  falls  in  value. 
If    the  unit  theory  is  not  true,   or  if  we  assume  it  to  be 
false,  the  only  alternative   is  that  labor  is  the  measure  of 
metallic  values,  as  Adam  Smith  said.     The  falsity  of  that 
theory  has  been   demonstrated,  and  hence  the  unit  theory 
must  be  true.     It  requires  a  number  of  complex  elements 
working  together  to  produce  that  standard  steadiness  in  the 
number  of  metallic   units  in  circulation,  as   compared  with 
those  of  commodities,  which  gold  and  silver,  distributed  by 
commerce  throughout  the  world,  furnish :  that  science  is  but 
chaos  which  calls  them  merchandise  when  and  so  long  as 
they  are  used  as  money:    it  is  nothing  but  the  old  mer- 
cantile theory  itself.     While  economical  science  pretends  to 
reject  this  theory,  and  at  the  same  time  retains   it  by  as- 
serting that  gold  and  silver  go  into  equations  of  exchange 
between  buyers  and  sellers  as  so  much  metal,  and  therefore 
as  commodity,   the  theory    itself,  strange  as  it   may  seem, 
carried  out  practically  and  acted  upon  (we  all  act  and  talk 
as  if  we  supposed  the  sun  to  revolve  daily  around  the  earth), 
is  one  of  the  most  important  of  all  the  complex  elements  in 
maintaining  steadiness.     Gold  and  silver  coin  will  not  circu- 
late when  paper   will  answer  the  purpose,  any  more  than 
bullion  or  plate.    When  they  circulate  we  may  be  sure  there 
is  no  other   money  to  be   used,  and  the  truth  and  force  of 
Adam   Smith's  law,  that  paper  money  ought  not  to  exceed 
in  volume  the  retiring  metal  whose  place  it  takes,  are  thus 
illustrated  by  the  very  theory  whose  absurdities  he  attacked. 
The  theory  itself  is  really  useful,  although,  like  a  man  of 


MONETARY   AND   INDUSTRIAL   FALLACIES.  205 

straw  soundly  cudgeled  from  time  to  time  by  the  economists 
when  they  suppose  they  are  showing  the  folly  of  hoard- 
ing, and  embraced  when  they  declare  money  to  be  a  com- 
modity. 

The  conventional  character  of  money  is  shown  plainly 
enough  in  our  financial  history  by  the  people  of  the  State 
of  California,  who  by  general  consent  adhered  to  gold  and 
silver,  while  in  other  parts  of  the  United  States  paper  was 
used  exclusively. 

"  Bimetalisni  "  and  international  coinage  follow  the  unit 
theory  as  logical  inferences  from  the  premises.  The  mon- 
etary propriety  and  (almost)  necessity  of  refraining  from 
the  national  coinage  of  silver  for  the  present  follow,  also. 
The  necessity  of  limiting  the  use  (in  other  words,  economy) 
even  of  gold  and  silver,  when  their  even  distribution  to 
every  producer,  laborer,  buyer,  and  seller  through  interna- 
tional as  well  as  national  commerce  (one  of  the  most  im- 
portant of  all  the  complex  elements  of  steadiness)  is  inter- 
fered with  by  equations  of  exchange,  where  units  of  labor 
or  labor  and  raw  material  constitute  one  side,  and  units  of 
money  the  other  side,  follows  in  like  manner,  in  order  to 
maintain  steady  prices  and  prevent  the  disorganization  of 
labor  and  the  bankruptcy  of  capital,  which,  under  the  name 
of  industrial,  banking,  and  commercial  crisis,  follow  an  ex- 
cess of  production  on  credit.  It  is  impossible  to  demonstrate 
clearly  how  these  effects  follow  even  the  loan  of  metallic 
money,  without  demonstrating  in  the  first  place  that  all 
money  is  essentially  alike,  and  then  showing  the  complex 
elements  which  give  it  steady  value  on  the  one  hand  and 
take  it  away  on  the  other. 

0.  P.  E.  You  are  right  in  placing  the  unit  theory  in 
plain  contrast  with  that  of  Adam  Smith  and  Ricardo.  They 
assumed  (of  course  they  never  proved)  labor  to  be  a  meas- 
ure of  value,  and  Smith  applied  the  theory  particularly  to 
the  labor  of  mining  for  the  precious  metals.  Other  Brit- 
ish writers  seem  to  leave  it  in  doubt  whether  they  adopt 
the  theory  or  not,  but  although  there  is  an  almost  entire 
want  of  logical  precision  in  this  respect,  they,  and  all  other 


206  MONETARY   AND   INDUSTRIAL  FALLACIES. 

writers  tvIio  affirm  money  to  be  a  commodity,  and  therefore 
possessed   of  mercantile  value,  virtually  admit  it,  and   most 
of  them   seem  to  take  it  for  granted  that  the  premium  in 
favor  of  metallic  over  inconvei-tible   paper  money,  when  it 
exists,  is  a  measure  of  the  depreciation  of  the  paper  below 
the  metal  in  purchasing  power.     They  say  the  metallic  cost 
labor ;  the  paper  money,  comparatively  speaking,  did  not : 
the  first,  therefore,  has,  and  the  second  has  not,  real,  or,  as  it 
is  sometimes  called,  intrinsic  value.     There  are  few,  if  any, 
economists    in   the   United  States  who  would  affirm  to-day 
that  labor  is  the  measure  of  value  of  its  product,  even  if  the 
product  be  one   of  the  precious  metals.     Nevertheless,  that 
theory  is  true  in  a  subjective,  although  not  in  an  objective 
or  causative  sense.     The  mistake  of  Smith  and  Ricardo  was 
in  giving  it  the  latter  meaning.     The  action  and  reaction 
of  human  wants  and  the  means  of  supplying  them  tend  all 
the  time  to  equality  of  compensation  for  labor  of  the  same 
grade  of  skill,  and  in  this  sense  only  is  labor  a  measure  of 
value. 

N.  S.  B.  That  is  true  as  a  general  proposition,  but  the 
sagacity  of  Smith  was  not  at  fault  (however  it  might  be  with 
his  logic)  in  supposing  gold  and  silver  to  fluctuate  in  value 
less  than  any  other  products  of  labor.  The  true  reason  is, 
that  metallic  and  all  other  units  of  money  are  not  commodi- 
ties and  possess  no  mercantile  value :  they  are  the  standard 
and  tangible  units  by  which  all  commodities  are  not  only' 
valued,  but  indirectly  exchanged.  Not  one  seller  in  ten  thou- 
sand knows  the  quantity  of  metal  in  the  money  he  receives, 
nor  would  he  ever  be  likely  to  inquire,  unless  compelled, 
in  the  absence  of  government  coinage,  to  weigh  it ;  but 
the  buyer  is  bound  to  ascertain  the  pounds  or  yards  of  the 
commodities  he  buys,  because  it  is  necessary  for  him  to  know 
whether  he  is  getting  his  money's  worth.  One  side  of  every 
equation  of  exchange  between  buyers  and  sellers  is  composed 
of  abstract  units,  the  other  side  of  commodities  or  capital, 
which  are  not  abstract.  If  both  sides  of  the  equation  were  ab- 
stract, there  could  be  no  trade  and  no  production ;  if  neither 
side  were  abstract,  we  should  be  without  indirect  barter  and 


MONETARY   AND   IXDT^STRIAL   FALLACIES.  207 

civilization,  and  have  direct  barter  and  barbarism.  I  desire 
to  impress  upon  you,  as  my  coadjutor  in  laying  the  foun- 
dation of  true  monetary  and  industrial  science,  the  reason 
why  gold  and  silver  vary  so  little.  If  there  were  no  money  in 
the  world  but  gold  and  silver,  distributed  everywhere  by 
commerce,  and  no  "economy"  of  metal,  there  would  be  little 
variation  in  their  average  purchasing  power.  Wheat  is  wanted 
for  consumption :  there  may  be  a  difference  of  ten,  fifteen, 
or  twenty  per  cent,  between  one  year's  product  and  that  of 
the  next,  and  even  with  such  a  metallic  currency  there 
would  be  more  or  less  resulting  variation  in  the  production 
of  relative  necessaries  on  credit,  by  the  aid  of  loans.  Under 
all  circumstances  there  must  be  more  or  less  variation,  from 
year  to  year,  in  the  production  of  absolute  necessaries  ;  but 
taking  all  commerce  and  all  production  throughout  the 
world,  the  annual  totals,  being  very  large,  vary  but  little, 
and  the  totals  of  gold  and  silver  varj'  even  less.  A  falling 
off  of  production  and  commerce  in  one  country  carries  the 
relative  excess  of  gold  and  silver  thus  arising  to  others. 
Smith,  adhering  to  the  commodity  theory,  gives  only  the 
latter  reason  for  the  steadiness  of  their  purchasing  power. 
The  subject  of  money  is  thus  seen  to  be  exceedingly  complex 
instead  of  simple,  although  the  object  sought  (unconsciously, 
perhaps)  is  localization,  distribution,  and  limitation  of  the 
abstract  units  of  money  in  harmony  with  the  units  of  com- 
modities consumed,  as  well  as  produced,  which  are  not  ab- 
stract. This  almost  perfect  uniformity  in  the  purchasing 
power  or  value  of  the  precious  metals  in  exchange,  as  com- 
pared with  that  of  any  particular  commodity,  probably  in- 
duced Smith  to  make  the  exception  in  their  favor.  As  to 
their  cost  in  labor  being  a  measure  of  their  value,  or  that  of 
any  other  product,  it  is  absolutely  impossible.  To  measure 
anything  whatever  requires  standard  measuring  units,  suit- 
able to  the  purpose  ;  it  may  be  a  unit  either  abstract  or  not 
abstract,  according  to  circumstances,  but  it  must  have  some 
relation,  and  all  the  relation  possible,  to  that  which  it  meas- 
ures. If  it  is  a  fixed  unit  of  length  or  weight,  it  is  not  ab- 
stract, and  cannot  be,  if  it  measures  things  intended  for  use 


208  MONETAllY   AND   INDUSTRIAL   FALLACIES. 

to  ascertain  quantities,  but   if  it  is  designed  to  measure  all 
commodities,  whether  sold  by  weight,  surface,  or  cubical  con- 
tents, the  measuring  units  must  necessarily  be  abstract,  for 
no  units,  even  of  a  commodity,  can  have  any  but  an  abstract 
relation  as  mere  units  of  number  to  the  units  of  all  other 
commodities.     In  other  words,  the  relation  of  any  one  com- 
modity to  all  is  necessarily  an  abstract  one.      Such  is  the 
relation   of  the  units  of  metallic  as  well  as  paper  money  to 
all  the  commodities  and  capital  in  the  world,  and  both  com- 
modities and  capital  in  the  hands  of  the  manufacturer,  the 
merchant,   the  farmer,  the  stockholder,   and  all  others,  are 
expressed  in    abstract   unit  dollars,  pounds,  etc.     Such  are 
the  very  complex  elements  which  produce,  by  their  conjoint 
operation,  the  simple  result  of  making  metallic  money  the 
least  variable  of  all  things  which  have  value.    How  can  any 
relations  of  value  between  all  labor  and  all  labor's  products 
be  stated  ?     It  is  absolutely  impossible.     The  relation  could 
only  be  stated,   if  at  all,  in    abstract  units,  and  the  units 
would  be  required  to  appear  in  all   equations  of  exchange 
between  buyers  and  sellers.     Nothing  of  this  kind  has  ever 
taken  place,  and  nothing  of  the  kind  is  conceivable.     Units 
of  labor  may  be  bartered  for  units  of  commodities,  or  sold 
for  units  of  money,  undoubtedly,  but  as  a   universal   equiv- 
alent they  could  never  furnish  abstract  units,  localized  in 
any  form.     Commerce,  internationally  and  nationally,  is  the 
indirect   exchange  of    commodities  through    the    agency   of 
money,  as  a  measure  of  their  relative  values.      Tlie   com- 
parison  between   the    commodities    and  the  fixing  of  their 
relations  must  be  by  units,  and  the  units  must  be  limited, 
because  the  commodities  are  limited.    This  is  all  easy  enough 
so  far  as  the  exchanges  of  commodities  for  actual  consump- 
tion are  concerned  :  such  exchanges  are  necessarily  harmo- 
nious, because  they  balance  each  other :  excess  and  want  of 
harmony  come  through  the  exchanges  of  units  of  money  for 
units  of  labor,  which  antedate  and  precede  the  exchanges  of 
commodities.    It  is  to  bring  the  former  within  comparatively 
short  instead  of   long  periods,  in   harmony  with  the  latter, 
that  I  propose,  if  practicable,  metallic  limitation,  at  some 


MONETARY   AND  INDUSTRIAL  FALLACIES.  209 

definite  point,  of  the  loans  which  supply  the  labor  exchanges 
with  units  of  money.     Under  the  form  of  money  which  the 
banks  do  not  own,  they  indirectly  loan  to  producers  and  la- 
borers all  that  they  consume,  while  creating  excess,  —  the 
producers  taking  the  first  risk  of  the  excess  going  without 
loss  into  equations  of  exchange  of  the  commodity  kind.    The 
rectification  of  the  joint  mistake  of  labor  and  capital  in  cre- 
ating this  excess  constitutes  a  commercial,  banking,  and  in- 
dustrial crisis.     When  political  economy  can  be  established 
on  a  few  leading  demonstrations  of  this  kind,  it  will  at  least 
be  intelligible.     The  labor  which  produced  all  the  gold  and 
silver  in  the  world  reckoned  in  average  money  value  of  day 
labor,  in  waste  of  muscular  time,  or  necessaries  consumed, 
is  probably  greater  than  the  gold  and  silver  are  worth,  reck- 
oned in  the  same  medium.     The  same  may  be  said  of  many 
other  minerals  —  petroleum,  for  instance  —  and  of  a  consid- 
erable portion  of  all  the  articles  largely  overproduced  by  the 
aid  of  loans.     All  the  products  of  labor  add  to  wealth :  if 
they  sell  for  too  much,  the  seller  has  the  difference ;  if  for 
too  little,  the  buyer,  wherever  they  may  be  found ;  and  so 
far  as  domestic  commerce  is  concerned,  the  difference  is  all 
retained  at  home.     But  the  enormous  waste,  of  both  capital 
and  labor,  implied  in  these  cases,  cannot  be  understood,  or 
even  guessed  at,  without  constructing  an  equation,  mentally 
at  least,  for  a  fixed  period,  —  say  fifty  years,  —  and  taking 
into  account  all  the  mineral,  all  the  timber,  all  the  buildino-. 
and  other  raw  material  wasted,  and  all  the  labor  misapplied. 
The  general  statement  of  the  equation  must  be :  Results  of 
all  the  labor  and  capital  actually  expended  without  harmony 
within  fifty  years,  plus   an    unknown    loss,  which    may  be 
represented  by  a:,  equal  the  results  which  might  have  been 
produced  with  harmony  of  production  within  the  same  pe- 
riod.    It  is  a  costly  business  to  produce  in  excess  of  markets: 
it  forces  producers  to  live  on  capital :  many  are  now  doing 
so,  both  in  England  and  in  the  United  States. 

0.  S.  B.     Inasmuch  as  every  purchase  of  labor  or  com- 
modities constitutes  a  simple  equation  of  exchange  between 
buyer  and  seller,  I  perceive  very  clearly  how  absurd  it  is  to 
14 


210  MONETARY   AND  INDUSTRIAL  FALLACIES. 

talk  about  set-offs  of  credit  after  the  truth  of  the  unit  theory 
of  money  is  admitted,  and  how  much  more  absurd,  if  possi- 
ble, it  is  to  compare  what  is  called  bank  with  mercantile 
credit.     "  Bank  credit "  puts   money  in   circulation   to  pay 
labor  for  the  most  part,  and  keeps  it  in   circulation   until 
labor's  products  are  sold,  or  their  sale  is  checked  by  a  com- 
mercial crisis ;  mercantile  credit  puts  no  money  in  circulation 
at  all,  but  on  the  other  hand  economizes  its  circulation  by 
allowing  buyers  to  hold  or  consume  without  ready  money ; 
the  only  possible  result  being  a  rise  of  the  particular  article 
sold.     This  may  be  carried  so  far  as  to  check  consumption 
and  bring  on  a  commercial  crisis  in  that  particular  article, 
but  this  is  a  totally  different  affair  from  a  general  crisis. 
The  mistake  we  have  made  in  confounding  bank  credit,  as 
we  used  to  call  it,  and  mercantile  credit,  arose  from  a  prior 
mistake  we  had  made  in  supposing  deposits  to  arise  from 
sales.     Mercantile  debt,  in  the  shape  of  notes  and  bills,  is 
given  in  exchange  for  bank  debt  deposited  to  the  credit  of 
the  borrower.     To  the  extent  of  this  debt  standing  thus  to 
his  credit  he  may  pay  out  of  the  reserve,  to  sellers,  units  of 
money  for  merchandise  or  labor.     Here  is  a  perfect  equation 
of  exchange  between  buyer  and  seller,  and  there  is  no  pur- 
chase of  merchandise  on  credit.     But  why  is  it  said  to  be 
like  it,  when  it  is  in  reality  its  direct  opposite  ?     It  must  be 
because  in  the  chaos  which  writers  and  bankers  make  out  of 
this  exceedingly  complex  subject  of  money,  rendered  vastly 
more  complex  by  banking,  they  fail  to  perceive  the  necessa- 
rily abstract  nature  of  all  money  units,  because  they  forget 
that  there  is  in  all  such  cases  an  equation  of  exchange  be 
tween  buyer  and  seller,  and  because  so  far  as  such  purchases 
take  place  without  actual  sales  for  cash  to  consumers  occur- 
ring shortly  afterwards,  and  where  there  are  no  profits  and 
charges  to  swell  the  cost,  there  is  an  exact  and  perfect  set-off 
between  mercantile  debt  due  banks  and  bank  debt  due  de- 
positors, following  as  the  result  of  the  sale.     But  this  set-off 
ends  in  no  diminution  of  mercantile  debt  due  banks,  or  bank 
debt   due   depositors,    while    mercantile    set-offs   extinguish 
debt  on   both  sides.     If  a  manufacturer  owes   a  bank  ten 


MONETARY   AND   INDUSTRIAL  FALLACIES.  211 

thousand  dollars  for  money  loaned  to  pay  labor  whose  pro- 
ducts can  find  no  Ciish  buyers,  or,  in  other  words,  consumers, 
the  bank  owes  depositors  a  like  sum  by  reason  of  the  loan, 
and  will  continue  to  owe  it  until  a  cash  market  is  found  ;  for 
suppose  a  merchant  to  make  a  loan  of  ten  thousand  dollars 
in  the  same  bank  in  order  to  buy  the  goods  :  he  increases 
mercantile   debt  to   the  bank    ten    thousand  dollars   by  so 
doing,  and  the  bank  increases  debt  due  depositors  by  a  like 
amount.     But  the  result  of  this  purchase  in  respect  to  bank 
and   mercantile  debt  is   that   the   buyer  gives  the  seller  a 
check  to  the  amount  of  deposits  thus  created  by  his  loan, 
and  the  seller  hands  it  to  the  bank  and  takes   up  his  debt 
by  bill  or  note,  thus  extinguishing  mercantile  debt  by  that 
amount,  while  the  bank,  by  charging  the  bank  account  of 
the  drawer,  extinguishes   to  a  like   amount  bank  debt  due 
depositors,  or  in  otlier  words  deposits.     Now  it  may  be  said 
in  this  case  that  bank  debt  due  the  merchant  throufrh  the 
new   loan   is    by  the    instrumentality  of  his    check    set  off 
against  mercantile  debt  due  the  bank  by  the  manufacturer, 
dollar  for  dollar.     That    is   undoubtedly  the  effect  of    the 
transaction,  but  there  is  no  increase  of  deposits,,  and  there 
can  be  none  except  through  the  actual  advance  of  produc- 
tion faster  than  consumption,  and  the  increased  cost  of  all 
production  on  credit  reckoned  in  prices  in  consequence.    This 
increase  of   cost  puts  more  money  in  circulation,  and  while 
raising  for  a  time  the  cost  of  the  overproduced  articles  to 
consumers,  raises  the  prices  of  what  the  consumers  have  to 
sell  also,  until  a  crisis  in  the  production  arrives.     Until  the 
crisis,  or  at  least  a  comparatively  short  period  in  advance  of 
it,  the  last  million  of  all  goods  produced  raises  to  consumers 
the  price  of  the  million  which  preceded  it,  as  well  as  the 
prices  of  what  consumers  have  to  give  in  exchange.     Over- 
production is  very  costly,  and  these  are  the  elements  of  dis- 
turbance it  furnislies,  until  forces  paramount  to  all  abstract 
units  of  money  bring  about  a  reaction.     Hence  a  producer's 
market  leaves   deposits  exactly  where  they  were,  except  so 
far  as  production  is  gaining:  in  order  to  have  an  exact  set- 
off as  the  result  of  bank  loans  and  checks,  production  and 


212  MONETARY  AND  INDUSTRIAL   FALLACIES. 

consumption  must  balance.  If  production  increases,  bank 
debt  or  deposits  increase;  if  consumption  increases,  bank 
debt  or  deposits  diminish.  The  reserve  is  the  money  of 
commerce :  as  true  commerce  or  the  actual  exchange  of 
commodities,  in  other  words,  indirect  barter,  increases,  the 
reserve  increases,  while,  as  production  on  credit  increases, 
the  money  of  commerce  diminishes.  The  reserve  then  sujd- 
plies  all  loans  out  of  the  money  of  commerce.  To  limit 
loans,  therefore,  as  we  propose,  is  simply  to  limit  at  some 
point  the  use  of  the  money  of  commerce  in  the  way  of  loans 
in  excess  of  that  commerce.  Such  loans  are  desirable  for 
nations  of  great  productive  energy,  but  it  is  essential  to  limit 
them,  and  I  now  understand  fully  what  limitation  means :  it 
means  a  limitation  of  the  power  of  one  half  of  all  producers 
to  produce  (beyond  a  certain  point)  by  the  power  to  pro- 
duce, and  therefore  to  consume,  of  the  other  half,  in  order  to 
maintain  harmony  of  production  as  well  as  consumption. 
To  these  conclusions  I  have  come,  step  by  step,  since  I  first 
perceived  the  fact  that  all  uiiits  of  money  must  necessarily 
be  abstract  in  relation  to  human  wants  and  the  means  of 
supplying  them ;  and  I  have  verified  my  perception  by  de- 
velopment, direct  demonstration,  and  induction.  By  means 
of  localized  and  limited  units  called  money,  the  relations 
between  these  wants  and  means  are  measured  for  the  pur- 
poses of  social  life.  This  is  the  most  abstract  form  in 
which  the  use  or  circulation  of  money  can  be  stated,  and 
therefore  it  is  the  most  complete  and  perfect.  Reduced  to 
a  more  practical  form,  it  may  be  stated  in  equations  of  ex- 
change between  buyers  and  sellers :  — 

10  units  (bushels)  of  wheat:=10  units  (dollars). 
10  units  (dollars)  =  10  units  (yards)  of  cloth. 

The  abstract  units  of  money  in  the  first  equation  are  on  the 
buyer's  and  consumer's  side,  and  the  units  of  commodities 
on  the  seller's  and  producer's  side.  The  case  is  precisely 
the  same  with  the  second  equation,  except  that  buyers  and 
sellers  change  sides.  The  seller  in  the  first  becomes  the 
buyer  in  the  next,  and  the  seller  of  cloth  in  the  last  equa- 


MONETARY   AM)   INDUSTRIAL  FALLACIES.  213 

tion  will  become  a  buyer  of  some  other  commodity  in  the 
next.  The  result  is,  tluit  by  eliminiiting  dollars  from  each 
equation  we  have  10  units  (bushels)  of  wheat  =  10  units 
(yards)  of  cloth,  and  the  cloth  and  wheat  are  indirectly 
bartered  for  each  other  by  means  of  abstract  vmits  localized 
and  limited,  and  called  money.  If  we  call  the  money  a 
commodity  possessed  of  mercantile  value,  we  have  double 
barter,  undoubtedly,  instead  of  single  barter  of  the  cloth 
and  wheat,  but  it  is  utterly  absurd  to  call  it  so,  because  if 
it  is  double  barter,  a  comparison  and  a  computation  must 
be  made  by  both  buyer  and  seller  of  the  uses  to  which  the 
money,  in  its  character  of  commodity,  can  be  put  after  it  is 
exchanged,  which  is  impossible.  It  is  not  therefore  direct, 
but  it  may  well  be  called  indirect  barter,  because  barter  is 
direct  as  well  as  complete  exchange,  but  here  we  have  com- 
plete although  not  direct  exchange  effected  by  the  interven- 
tion on  most  occasions  of  an  entirely  new  seller  in  the  sec- 
ond equation,  and  the  exchange  thus  becomes  indirect.  If 
the  pieces  of  money  were  not  abstract,  in  other  words,  gen- 
eral, or,  in  still  other  words,  units,  this  indirect  exchange 
would  be  impossible,  and  we  should  have  only  the  barter  of 
savages.  To  insist  that  we  still  have  barter  is  to  insist  upon 
the  truth  of  what  the  economists  call  the  old  mercantile  the- 
oi"y  of  money.  This  theory  is  good  in  its  place,  but  very 
mischievous  out  of  place.  It  is  good  so  long  as  people  treat 
metallic  money  as  a  thing  of  value,  like  plate,  when  they 
have  paper  money  on  hand :  it  is  pernicious  when  it  leads 
bankers  and  economists  to  believe  that  a  bank  deals  in 
"  credits,"  in  contradistinction  to  money ;  that  the  reserve 
has  no  relation  to  credits,  and  that  they  arise  only  from  the 
sale  of  commodities. 

N".  iS.  B.  How  soundly  you  reason  when  you  have  a 
sound  theor}'  to  reason  from.  Demonstration  by  equations  is 
very  satisfactory,  but  you  must  carry  it  one  step  farther,  or, 
in  other  words,  you  must  state  the  terms  of  three  other 
equations  before  it  is  perfect.  Were  there  no  other  equa- 
tions of  exchange  between  buyers  and  sellers  but  those  you 
have  stated,  banks  would   need  no  metallic  reserve ;  a  re- 


214  MONETARY  AND   IXDUSTKIAL   FALLACIES. 

serve  of  bank-notes  not  convertible  into  metal  would  be  suf- 
ficient, as  I  have  already  shown.  It  is  precisely  because  O. 
P.  E.'s  old  theory,  that  there  can  be  no  overproduction, 
even  relatively,  is  false,  that  not  only  convertibility,  but 
convertibility  carried  to  and  kept  at  a  point  where  it  is 
also  limitation,  is  essential.  Gold  and  silver  are  metals,  and 
as  metals  undoubtedly  commodities  ;  but  becavise  their  chief 
use  is  to  furnish  units  of  money,  the  laws  of  ordinary  com- 
modities do  not  apply  to  them,  and,  as  I  have  said,  there 
is  but  little  variation  in  their  total  as  compared  with  that  of 
all  other  commodities.  Hence,  because  variations  in  the  total 
of  the  units  of  all  commodities  are  small,  compared  with 
that  of  any  one  commodity,  the  units  of  gold  and  silver 
must  necessarily  vary  less  than  those  of  any  other  one  com- 
modity. But  if  paper  units  only,  in  the  form  of  bank-notes, 
were  put  in  equations  of  exchange  like  those  you  have 
stated,  how  could  prices  be  other  than  steady  ?  The  circu- 
lation of  money  consists  in  putting  it  into  equations  of  ex- 
change between  buyers  and  sellers,  and  making  deliveries 
accordingly :  putting  it  in  circulation  by  a  buyer  is  taking 
it  out  of  circulation  by  a  seller ;  the  first  is  expansion,  the 
second  is  contraction  of  circulation.  One  of  these  balances 
the  other,  and  it  is  difficult  to  see  how  prices  could  be 
otherwise  than  steady,  even  if  the  conventional  units,  called 
money,  instead  of  appearing  in  the  form  of  metal,  appeared 
in  that  of  bank-notes,  issued  by  sound  banks  to  merchants, 
so  long  as  units  of  money  were  placed  in  these  equations 
only.  Disorder  comes  when  the  units  are  placed  by  means 
of  bank  loans  in  equations  of  this  kind  :  10  units  (dollars) 
=  10  units  (of  days'  work).  The  expansion  of  circulation 
through  the  buyer  of  the  labor  is  balanced  by  no  contraction 
of  circulation  on  the  part  of  the  seller  of  the  labor,  until  the 
product  of  the  labor  goes  into  an  equation  of  the  first  kind, 
and  so  passes  to  a  consumer  or  cash  buyer.  When  it  does 
so,  and  not  before,  is  there  a  contraction  of  circulation  to 
balance  expansion,  by  a  return  to  the  bank  of  the  money 
loaned.  But  whether  it  ever  goes  into  such  an  equation  or 
not,  labor  must  live,  and  it  expends  enough  for  that  purpose 


MONETARY  AND   INDUSTRIAL   FALLACIES.  215 

and  retires,  it  may  be,  the  surplus  into  savings  banks.  It  is 
tliis  wiiich  expands  the  circuhition  without  contracting  it  on 
the  part  of  hibor,  and  the  surplus  of  wages  helps  to  repeat  the 
process.  There  is  one  more  equation  which  produces  the  same 
result.  The  preceding  equation  is  labor's  statement,  but  here 
is  the  equation  stated  by  producing  capital:  10  units  (wages) 
+  2  units  (profits)  =  12  units  (dollars  created  by  sale  of  la- 
bor's product).  Tlie  units  of  profit  appear  in  deposits,  and, 
in  company  with  units  of  wages  in  the  character  of  dollars, 
swell  the  total  of  money  as  compared  with  the  total  of 
commodities  actually  consumed  ;  and  hence  prices.  Metallic 
money  now  becomes  indispensable,  because,  under  the  condi- 
tions previously  mentioned,  money  in  general  may  be  called 
a  conventional  commodity,  whose  units  would  never  increase 
in  excess  of  the  units  of  commodities  consumed,  if  all  loans 
were  made  by  carefully  managed  banks  like  those  of  Scot- 
land, even  without  carrying  convertibility  to  the  point  of 
limitation  ;  but  under  actually  existing  conditions,  limitation 
is  indispensable.  The  units  of  wages  paid  in  bank-notes 
thus  rwippear  in  deposits,  together  with  the  cost  of  raw  ma- 
terial and  profits  on  all  sales  made  to  buyers,  who  buy  with 
bank  loans,  and  swell  the  volume  of  deposits  in  the  shape 
of  bank  debt  in  excess  of  reserve,  after  the  reserve  has  al- 
ready been  drawn  upon  to  pay  the  wages  of  labor.  There 
is  a  double  e-tpansion  here :  first,  of  the  reserve  through  a 
loan  to  pay  wages  before  the  product  exists,  and  secondly,  a 
loan  which  increases  bank  debt  to  enable  a  merchant  to  buv 
the  product  as  soon  as  it  appears,  —  the  elements  of  the  loan 
being  the  same  wages  and  raw  material  with  profits  added, — 
and  deposits  are  thus  increased  by  wages  -f-  j^rofits. 

In  respect  to  wages  and  commodities  bought  with  wages, 
the  equation  of  purchase  stated  in  terras  is  this  :  16  units 
(wages  in  dollars)  =  16  units  of  commodities  consumed 
by  labor  in  exchange  for  wages.  Labor  here  gives  rise  to  no 
second  equation  by  buying  a  commodity  like  cloth,  in  place 
of  a  commodity  like  wheat,  previously  sold,  as  in  two  of  the 
preceding  equations:  it  has,  therefore,  consumed  without  ex- 
changing commodities,  or,  what  is  the  same  thini:^.  causing 


216  MONETARY   AND   INDUSTRIAL   FALLACIES. 

thoni   to  be  exchanged,   and  sucli  will  continue  to  be  the 
case    until  its    products  are    sold.     It   has    stated   only  the 
first  equation  of  indirect  barter,  and  until  its  products  are 
sold  it  cannot  state  the  second.     The  blocking  of  the  ex- 
changes, then,  is  not  an  affair  of  money,  but  of  indirect  (not 
direct)    barter,    half  performed.      What    makes  a  "tight" 
money  market  is  the  blocking  of  the  exchanges  of  commod- 
ities with  the  unsold  products  of  labor :  on  the  other  hand, 
an  easy  money  market  is  a  free  exchange  of  the  products  of 
labor.     Again,  high  prices  mean  that  labor  is  making  more 
of  the  equations  which   constitute  the  first  act  of   indirect 
barter  with  its  wages  than  buyers  and  sellers  are  making  of 
the  second,  and  that  capital  is  doing  the  same  with  its  profits. 
Low  prices   mean,  not  that  money  is  any  plentier,  but  that 
the  balance  of  debt  due  by  equations  of  the  first  to  those  of 
the  second  kind  is  being  made  up  by  an  increase  of  the  latter 
over  the  former.     Steady  prices,  therefore,  must  arise,  not 
from  the  movements  of  money,  but  from  the  balancing  of  the 
first  equations  by  the  second,  in  other  words,  an  even  and 
harmonious  exchange  of  labor's  products.    The  movements  of 
the  producing  and  commercial  world  are  thus  mirrored  in 
bank  loans,  deposit  debt,  and  reserve.     From  the  most  prac- 
tical view  of  banking,  production,  and  commerce  which  it  is 
possible  to  take  in  a  general  sense,  any  distinction  between 
the  units  which  merely  measure,  —  for  they  certainly  do  not 
control   the    production    and    exchange   of    commodities,  — 
founded  upon  what  we  now  perceive  to  be  only  a  cobweb  dis- 
tinction between  units   of  debts  and  of  mere  "  rights  of  ac- 
tion "  on  the  one  hand,  and  units  of  gold  and  silver,  except 
so  far  as  one  or  the  other  best  maintains  equality  between  the 
two  equations,  and  consequently  steady  prices,  wages,  profits, 
and  taxes,  has  no  just  foundation  in  science.    A  deposit  bank 
like  that  of  Amsterdam,  and  a  bank  of  deposit  and  discount, 
having  a  fixed  limitation  to  its  economy  of  metal,  need  never 
move  a  dollar  out  of  its  reserve  so  far  as  this  question  is  con- 
cerned, because  limitation  is  the  object  sought  by  science.    If 
the  metal  never  saw  the  light,  or  if  it  were  entirely  lost,  the 
result  would  be  the  same  as  long  as  the  limitation  continued 


MONETARY   AND   INDUSTRIAL   FALLACIES.  217 

the  same  in  the  absence  of  the  metal  as  with  it.  The  prin- 
ciple is  the  same  with  all  money  reserves,  whether  they 
belong  to  individuals  or  banks  :  limitation  is  the  end  really 
souglit,  no  matter  what  may  be  said,  thought,  or  believed 
upon  the  subject.  The  belief  that  metallic  money  has  a 
mercantile  value  is  useful  only  so  far  as  it  aids  that  kind 
of  money  in  its  function  of  limiting  all  other  kinds.  This 
is  the  kind  of  political  economy  O.  P.  E.  must  now  teach. 
He  must  no  longer  teach  that  the  object  of  convertibil- 
ity is  to  enable  one  to  exchange  something  which  has  not 
real  value,  for  something  which  has ;  a  mere  paper  dollar, 
which  is  not  a  thing,  but  only  a  "  chose  in  action,"  or  prom- 
ise, for  a  real  dollar,  or  thuig  which  may  be  called  a  com- 
modity. A  "  paper  money  theorist,"  as  C.  B.  C.  has  been 
hitherto  (but  is  not  now),  can  never  be  convinced  by  such 
arguments.  Men  act  upon  the  mercantile  idea  instinctively 
when  they  hoard  gold  or  pay  out  paper  in  preference,  but 
such  arguments  can  never  convert  them. 

0.  P.  E.  The  unit,  in  opposition  to  the  commodity  or  mer- 
cantile theory  of  money,  which  I  have  now  adopted,  makes 
all  your  illustrations  by  equations  comparatively  plain.  So 
long  as  I  regarded  money  as  anything  more  than  valuing  and 
paying  units,  and  possessed  of  real  as  well  as  conventional 
value  at  the  same  time  (which  is  a  contradiction  in  terms), 
I  confounded  the  auxiliary  with  the  real  exchange,  and 
therefore  consistently  called  an  exchange  of  a  gold  eagle  for 
ten  bushels  of  wheat,  or  ten  yards  of  cloth,  barter ;  whereas, 
barter  is  a  direct  exchange  of  commodities  between  savages, 
or  the  first  settlers  in  our  "  backwoods."  Mankind  never 
came  out  of  barbarism  into  civilization  in  a  day,  as  ^Minerva 
is  fabled  to  have  sprung,  ready-armed,  from  the  brain  of 
Jupiter  ;  slow  pi'ogress  upward,  and  not  instantaneous  per- 
fection, is  the  rule.  Barter  requires  comparison  between  the 
things  bartered,  in  respect  to  wants  to  be  supplied,  and  the 
comparison  is  made  by  valuing  each  in  the  other  ;  the  sur- 
plus of  one  producer  supplying  the  wants  of  another.  This 
comparison  must  have  been  made  in  units,  because  it  could 
be  nuide  in  no  other  way,  and  it  gave  rise  in  the  second  stage 


218  MONETARY  AND  INDUSTRIAL   FALLACIES. 

of  development  to  a  localization  of  the  nnit  in  shells  and 
wampum.  Labor  of  some  kind  was  undoubtedly  essential  to 
find  the  shells  or  make  the  wampum,  but  it  was  only  means 
to  an  end,  and  not  the  end  itself,  because  the  end  was  and 
always  will  be  limitation,  now  attained  in  the  most  perfect 
manner  possible  by  gold  and  silver  except  when  they  are 
banked,  and  limitation  is  tlius  reduced  to  mere  convertibility. 
If  we  look  only  at  the  end  sought,  it  is  correct  to  say  that 
direct  barter,  which  is  bringing  two  commodities  together  to 
make  an  exchange,  has  developed  into  indirect  barter  tlirough 
the  contrivance  of  localizing  anei  limiting  the  abstract  units  ; 
thus  dividing  direct  barter  into  two  parts,  and  so  making  it 
indirect. 

The  surplus  of  one  man  supplies  the  wants  of  another  by 
mutual  action  and  reaction  between  the  wants  of  all  buyers, 
every  purchase  being  at  the  same  time  a  sale.  In  this  indi- 
rect exchange,  so  long  as  it  is  confined  to  commodities,  all 
must  be  sellers  before  they  can  be  buyers.  The  units,  being 
abstract  in  the  beginning,  must  continue  so  under  all  cir- 
cumstances. Whether  wheat,  or  gold  and  silver,  be  the 
material  to  furnish  them,  they  are  valuable  only  because 
they  are  used  to  make  the  exchanges.  Were  gold  and  sil- 
ver to  go  out  of  use  for  that  purpose,  they  would  sink  to 
less  than  twenty-five  per  cent,  of  their  present  value.  That 
they  will  never  be  abandoned  is  exceedingly  probable,  not 
because  they  cost  labor,  but  because  in  the  most  important 
function  of  money  —  that  of  limitation  and  consequent  stead- 
iness—  they  cannot  be  surpassed.  All  the  "movements" 
of  gold  and  silver  bullion  and  money  are  now  plain  to  me. 
Heretofore  I  have  sometimes  supposed  that  silver  had  fallen, 
and  sometimes  that  gold  had  risen.  I  now  perceive  that 
both  of  these  propositions  are  fallacies,  because  they  only 
contain  one  half  of  the  truth.  I  now  perceive  that  one 
must  necessarily  have  risen  if  the  other  has  fallen  ;  and 
precisely  to  the  same  extent.  Should  silver  gradually  go 
out  of  use  under  the  delusion  that  none  but  a  "  single  stand- 
ard "  can  be  maintained,  and  no  longer  be  retained  even 
for  "  subsidiary  "  purposes,  every  fall  in  silver  must  be  at- 


TMOXETAKY   AND   INDUSTRIAL   FALLAriKS.  219 

tended  by  an  equal  rise  in  gold  until  silver  goes  out  of  use 
entirely  ;  and  the  same  may  be  said  of  gold.  Both  metals, 
until  they  go  out  of  use,  will  continue  to  be  precious,  be- 
cause they  furnish  precious  units  of  purchasing  power  re- 
ceivable for  everything  on  sale.  I  perceive,  now,  that  al- 
though gold  and  silver  are  exchanged  for  money  to  be 
manufactured  into  plate,  watch  cases,  foil,  and  jewelry,  they 
are  exchanged  by  a  very  different  rule  from  that  applied 
to  other  commodities.  It  is  their  unit  value  which  de- 
termines their  bullion  value.  Were  they  to  be  used  no 
longer  as  money,  they  would  no  longer  be  exchanged  in  that 
way,  but  like  platinum  or  iron.  With  international  mints, 
or  national  mints  internationally  regulated,  it  is  clear  to  me 
that  my  friends  would  give  up  standard  as  a  thing  of  the 
past,  because  it  would  no  longer  be  possible  to  export  money 
units  for  recoinage  at  a  profit.  Whither  could  they  be  ex- 
ported, should  the  barter  rates  of  gold  and  silver  be  made 
as  1  to  20  ?  It  would  not  be  reasonable  to  fix  them  in  this 
manner,  because  their  natural  proportion  would  probably 
be  about  1  to  15,  if  each  were  equally  in  use. 

But,  whatever  the  proportion  might  be,  it  would  be  steady, 
because,  money  being  entirely  conventional,  the  commercial 
world,  the  author  of  the  convention,  can  limit  and  regulate 
it  short  of  the  demand  for  commodity  use.  I  perceive  that 
if  two  commodities  be  chosen  indifferently,  to  manufacture 
by  coining,  or  even  to  weigh  out  at  every  purchase  units  of 
valuation  and  payment,  purchasing  power  must  be  divided 
exactly  between  them,  naturally  and  necessarily ;  and  that 
precisely  as  one  goes  out  of  use,  it  must  lose  and  the  other 
must  gain  in  value  ;  and  I  have  ju«t  now  applied  this  prin- 
ciple to  silver  and  gold.  I  perceive  now  the  absurdity  of 
supposing  that  gold  or  silver  is  likely  to  become  too  plenty, 
and  I  perceive  as  clearly  the  importance  in  the  future  of 
making  both  silver  and  gold  the  money  of  the  commercial 
world,  because  if  you  double  the  total  number  of  money 
units,  as  you  would  by  adding  five  thousand  millions  (dol- 
lars) of  silver  to  a  like  number  of  gold,  the  compouiul  ratio 
of  annual  production  to  total  combined  mass  would  be 
steadier  than  that  of  a  single  ratio  to  single  mass. 


220  MONETARY   AND   INDUSTRIAL   FALLACIES. 

I  perceive,  also,  why  both  metals  have  remained  so  steady 
in  the  absence  of  demonetizations.  When  the  product  of 
gold  was  for  a  period  three  times  as  great  as  that  of  silver, 
or  that  of  silver  three  times  as  great  as  that  of  gold,  if 
their  principal  use  had  not  been  that  of  furnishing  money 
units,  there  could  not  have  been  such  large  masses  accu- 
mulated, and  there  would  have  been  great  variations  of  price, 
as  happens  in  other  commodities,  but  the  difference  in  price 
has  never  exceeded  the  difference  between  the  respective 
ratios  of  product  to  mass,  which  rarely  exceeded  one  per 
cent,  as  against  a  variation  in  product  of  three  hundred  per 
cent.  But  even  this  variation  of  one  per  cent,  in  ratio 
was  speedily  adjusted,  and,  under  general  and  equal  use  of 
both  metals  as  money,  would  be  adjusted  immediately,  if 
indeed  it  could  be  said  ever  to  exist  at  all.  Should  silver 
fall  one  per  cent.,  gold  would  rise  one  per  cent.,  and  ad- 
justment of  ratio  would  immediately  follow  by  coining  one 
half  of  one  per  cent,  more  silver,  because  the  cheapest  ma- 
terial to  make  money  units,  and  coining  one  half  of  one  per 
cent,  less  gold,  because  the  dearest.  The  constant  vibration 
of  the  ratio,  so  to  speak,  between  gold  and  silver  would 
keep  equal  numbers  of  gold  and  silver  units  in  existence, 
and  hence  approximately  equal  quantities  of  each  in  plate 
and  other  manufactured  commodities,  for,  if  from  two  equal 
masses  equal  parts  be  taken,  the  remainders  must  be  equal. 
This  is  not  absolutely,  but  approximately  true. 

iV.  aS'.  B.  Your  arguments  are  stronger  than  mine  or  those 
of  my  friend.  Let  us  close  tlie  debate  with  a  statement  of 
general  results,  and  a  comparison  of  our  industi-ial  condition 
and  tliat  of  England.  The  equation  of  money  in  the  shape 
of  wages  given  and  paid  out  in  exchange  for  commodities  to 
support  labor  ;  tliat  of  bank  dividends  and  profits  arising 
from  sales  outside  of  a  consumer's  market  paid  out  for  the 
same  purpose,  and  the  surplus  of  labor's  wages  and  that  of 
dividends  and  profits  not  thus  expended,  go  to  sustain  fur- 
ther  production  directly,  until  they  have  been  capitalized  in 
the  manner  before  mentioned.  The  whole  result  may  be 
stated  in  four  equations :  Say,   fV  of  labor's  wages  r=  prod- 


MONKTAIIY   AND   INDUSTRIAL   FALLACIES.  221 

ucts  of  other  labor  -f-  capital  consumed  =  x  overstock;  \  of 
dividends  and  profits  =  products  of  labor-}- capital  nnpro- 
ductively  consumed ;  -^^  labor's  wages  =  capital  in  savings; 
remaining  \  of  dividends  and  profits  =  products  consumed, 
which  ajipear  in  labor  and  material  capitalized  in  railroads, 
municipal  improvements,  mills,  mortgages,  real  estate,  and 
other  investments.  The  figures  are  conjectural,  but  as  com- 
merce consists  of  the  indirect  exchange  of  commodities, 
there  result  from  the  equations  enormous  investments  fol- 
lowing the  consumption  of  the  wheat,  provisions,  and  other 
absolute  as  well  as  relative  necessaries  of  life  raised  in  price 
by  the  resulting  overproduction  in  excess  of  commerce. 
Rectification  of  the  excess  is  allowing  commerce  to  gain 
upon  production  until  equilibrium  is  restored.  But  which 
country  suffers  most?  England  or  the  United  States?  The 
latter,  undoubtedly  ;  for  when  production  was  most  costly, 
when  we  Avere  ready  to  purchase  railroad  iron  at  enor- 
mous prices,  and  pay  for  it  in  debentures  at  equally  low 
prices,  we  built  our  railroads :  the  English  producers  have 
the  first  lien,  and  second  incumbrancers  and  stockholders  in 
the  United  States  must  stand  in  the  rear.  We  are  the  com- 
mercial tributaries  of  England :  she  has  rapidly  accumulated 
wealth  within  the  last  ten  years,  but  the  income,  like  that 
from  all  production  on  credit  carried  to  excess,  is  very  uncer- 
tain, and  she  must  be  rapidly  losing.  France  is  a  producer 
of  those  luxuries  the  consumption  of  which  falls  off  first  of 
all  kinds  in  hard  times.  *Tlie  producers  of  those  luxuries  are 
suffering  because  their  customers  everywhere  are  suffering. 
The  true  remedy  for  the  United  States  is  a  sound  currency, 
not  convertible  merely,  but  limited,  according  to  the  unit 
theory.  I  have  demonstrated  the  falsity  of  the  commodity 
theory  by  a  reductio  ad  ahsurdum^  that  of  the  combined  com- 
modity and  conventional  theory  by  its  contradictions,  and  the 
truth  of  the  unit  theory  in  all  the  modes  stated.  The  absurd- 
ities of  the  theory  that  banks  deal  in  credit  like  that  of 
merchants  is  now  apparent  to  you  :  merchants  buy  goods  of 
each  other  on  time  and  pay  in  cash  at  its  expiration,  and 
thus  instead  of  putting  money  in  circulation  in  excess  of  the 


222  MONETARY  AND   INDUSTRIAL  FALLACIES. 

actual  exchanges  of  commodities,  they  economize  it  and  only- 
raise  the  price  of   the  particular  goods  by  furnishing  a  mar- 
ket  for  them.     The  pi'oducers,  adventurers,  speculators,  and 
laborers  ^x\\o    buy  most  of   the  goods  they  consume,  while 
they  are  making  cloth,  iron,  and  lumber,  and  constructing 
railroads,   mills,    factories,   shops,   rows  of    city  houses,  and 
warehouses  in  excess  of  actual  business  and  population,  pay 
borrowed  money  and  (what  results  from  the  use  of  the  bor- 
rowed money,  and  amounts  to  the  same  thing)  money  re- 
ceived  in  the  shape  of  dividends  and  profits,  before  any  of 
the  results  have  found  buyers  or  have  become  productive. 
So  far  as  these  results  appear  in  the  shape  of  commodities 
which   must  in  time  find  buyers  and  actual  consumers  who 
will  require  them,  the  crisis  is  comparatively  light,  and  there 
is  less  industrial  although  there  is  a  great  deal  of  mercantile 
and  bankin^c  disturbance.     In  those  commodities  which  are 
essential  to  commerce,  and  rank  next  in  importance  to  ab- 
solute  necessaries,  rectification    of    excess    takes    place    the 
soonest ;  for  all  excess  is  relative.     Take  half  the  excess  and 
place  it  to  the  credit  of  defect,  and  you  have  equilibrium. 
The  slowest  recovery  is  where  the    commodities    or   goods 
produced  have  gone  like  iron,  lumber,  timber,  etc.,  into  rail- 
roads and   rolling  stock,  houses  and  warehouses,  municipal 
and  other  improvements,  and  into  lands  and  mortgages,  in 
excess  of  actual  commerce  and  population.     All  this  excess 
must  be  paid  for  slowly  by  the  actual  exchange  of  commod- 
ities, which  is  none  other  than  that  of  producing  consumers 
who  have  already  sold  commodities  and   can    therefore    pay 
with  cash.     This  comes  with  population  and  improvement 
of  land,  and  we  must  take  into  account  the  labor  which  sup- 
plies our    markets   from  abroad,   as  well  as  that  at  home. 
Costly  excess  could  never   have  proceeded   so  far   without 
borrowed  money.     And  what  borrowed  money  supplied  the 
materials  and  the  labor  which  went  into  what  is  called  fixed 
capital  ?     Borrowed  money  through  bank  loans   in  the  first 
instance,  undoubtedly,  for  workmen  must  have  their  wages 
in  cash  and  producers  their  profits  in  cash  so  far  as  needed 
in  order  to  live.     Mathematically  stated,  therefore,  we  have 


MONETARY  AND   INDUSTRIAL   FALLACIES.  223 

in    the   foregoing  equations  borrowed   money  exchanged  for 
goods  consumed,   the    results  of  wliich    exchange    and    con- 
sumption have  never  yet  gone  into  a  second  series  of  equa- 
tions to  complete  the  indirect  exchange,  which  therefore  can 
never  be  brought  about  until  the   overstock   and   the  cap- 
italized   results  are  in    part  sold,   and  the  deficit  made    up 
by  future  production  and  sales.     Commercially  stated,  future 
production  and  the  commerce  arising  from  it,  as  well  as  the 
commerce  arising  out  of  the  present  overstock,  must  event- 
uali}^  pay  the   debt.     The  debt  could   never  have  risen  to 
such  figures  had  not  the  banks  in  effect  loaned  commodities 
by   loaning  abstract  units  of   money  :  a  mercantile  sale  of 
commodities  on    credit  by  merchants  to  merchants  or  pro- 
ducers could  not  have  caused   the  rise.     The  rise  came  as 
explained  by  the  equations,  from  expanding  the  circulation 
of  money  in  excess  of  its  contraction  :  there  were  more  buy- 
ers than  sellers  of   commodities,  not    upon    credit  certainly 
(as  the  credit  theory  affirms),  because  all  bought  with  cash. 
The  credit  consisted,  not  in  buying  goods  upon  credit,  but  in 
producing  and  holding  the  product  upon  credit  through  the 
aid  of  bank  loans.     It  was  undoubtedly  an  economical  debt, 
for  the  producers  ran  in  debt  to  the  exchanges,  and,  if  able, 
they  must  pay  it  to  the  exchanges.    This  payment  will  not  re- 
sult from  paying  the  banks,  but  will  cause  the  latter  payment 
to  take  place.     The  present  fall  in  prices,  then,  results  in  an 
economical  sense  from  the  falling  off  of  production,  for  that 
leads  to  diminished  consumption,  and  the  latter  to  diminished 
demand  :  while  in  a  monetary'  sense  diminished  production 
puts  less  money  in  the  hand  of  labor  and  capital,  in  the 
shape  of  wages  and  profits,  and  hence  in  proportion  to  actual 
exchange  of  commodities  indirectly  bartered  through  money, 
there   is  less   money  in  circulation  than   before,  and  lower 
prices.     If  prices  were  always  steady,  it  would  not  be  ma- 
terial whether  the  units  were  multiplied  or  divided  by  two, 
because  in   international   exchanges   merchandise,   although 
valued  and  sold  in  the  foreign,  is  afterwards  valued  and  sold 
in  the  domestic  market.     It  is  the  fall  in  prices  following 
overproduction   which  causes  loss  and  bankruptcy  to  manu- 


224  MONETARY  AND   INDUSTRIAL   FALLACIES. 

fucturers  and  mercliants.  This  fall  is  called  shrinkage  in 
values.  Here  we  can  see  the  vast  advantage  England  has 
over  the  United  States.  Her  accumulations  by  way  of  in- 
come have  been  enormous  within  the  last  ten  years.  Our 
raw  material  and  wheat,  provisions  and  petroleum,  although 
some  of  them  have  been  high,  have  remained  comparatively 
steady,  but  her  and  our  railroad  iron  has  fallen  nearly  one 
half  in  price.  We  really  could  not  afford  to  pay  her  more 
than  two  thirds  of  the  prices  she  actually  received,  nor  could 
we  afford  to  sell  our  debentures  at  such  low  figures.  She  has 
gained  enormously  while  supplying  us  as  well  as  other 
countries,  but  the  falling  off  in  her  production  through  the 
exhaustion  of  her  customers  must  soon  tell  upon  her  income. 
In  conclusion,  we  must  not  be  misunderstood.  We  do  not 
mean  to  say  that  it  is  entirely  practicable  to  regulate  bank- 
ing reserve  throughout  the  United  States,  but  we  do  say  that 
in  the  absence  of  deposits,  bank-notes  could  be  made,  through 
a  consolidated  reserve,  to  furnish,  in  company  with  a  com- 
paratively small  amount  of  metal,  nearly  as  steady  a  circula- 
tion as  that  of  France,  and  the  demonstration  of  this  fact 
which  we  have  furnished  is  of  the  utmost  importance :  that 
it  will  ultimately  be  apj)lied  as  far  as  practicable  to  all  bank 
loans  we  cannot  doubt.  The  chief  advantage  to  be  derived 
from  metallic  in  contradistinction  to  all  other  money  is  that 
of  limitation  and  consequent  steadiness,  whatever  may  be 
affirmed  or  denied,  and  whether  or  not  it  shall  continue  to 
be  called  by  scientists  a  commodity  and  therefore  possessed  of 
real  mercantile  value,  while  all  other  kinds  of  money  are 
called  debts  and  choses  in  action,  without  any  real  value. 
We  do  not  say  that  the  general  adoption  of  the  unit  theory, 
with  a  perfect  limitation  of  bank  loans,  would  regulate  com- 
pletely and  keep  in  harmony  all  the  results  of  labor,  but  we 
are  certain  that  it  would  mitigate  the  effect  of  all  disturb- 
ances of  that  harmony,  by  making  them  short  in  duration 
and  comparatively  mild  in  character.  The  unit  theory  of 
money,  which  has  been  established  by  demonstration  in  this 
debate,  can  never  be  introduced  of  course  until  a  large  major- 
ity of  economists  adopt  and  teach  it. 


MONETARY   AND   INDUSTRIAL  FALLACIKS.  225 

0.  p.  E.  The  great  difficulty  of  estiiblisliini^  it  lies  in  the 
fact  that  under  coinage  at  bullion  values,  bullion  and  coin 
corres]X)nd  in  value.  That  this  is  only  a  coincidence ;  that 
unless  all  coins  are  regarded  as  tokens  none  ought  to  be  so 
regarded  in  point  of  science  ;  that  bullion  is  not  sold  like 
other  commodities,  and  in  fact  not  really  sold  at  all,  are 
overlooked. 

N.  S.  B.  That  is  true.  There  is  really  no  such  thing  as 
a  sale  of  gold  or  silver  bullion,  where  unit  and  bullion 
values  correspond,  and  hence  there  can  be  no  such  thing  as  a 
sale  at  all.  We  may  well  say,  therefore,  that  gold  is  never 
sold  as  bullion,  whether  assayed  or  not.  It  is  merely  ex- 
changed :  units  of  weight  in  bullion  are  exchanged  for  units 
of  weight  in  gold  coin,  or  even  for  paper.  It  is  an  exchange 
and  not  a  sale,  and  it  would  be  the  same  if  there  were  no 
mints  :  wedges  and  ingots  might  furnish  the  units  or  they 
might  be  moulded  or  hammered  into  some  other  form  :  in 
all  cases  they  would  exchange  as  units.  Were  it  not  for 
the  illusion  created  by  convertibility,  which  is  only  an  ex- 
change (for  such  is  redemption)  the  long-continued  use  of 
bank-notes  ought  to  have  given  rise  to  a  clear  perception  of 
the  fact  that  all  paper  money,  convertible  as  well  as  incon- 
vertible, is  but  a  series  of  abstract  units,  numbered  from  one 
upwards,  and  that  valuing  power  stands  inversely  to  numbers. 
Dollar  is  an  abstract  unit,  and  is  only  the  African  macoute 
(which  was  an  abstract  unit  of  comparison  and  valuation  in 
barter)  localized  and  limited.  In  the  African  exchange 
mentioned  by  Montesquieu  the  macoutes  were  simply  ab- 
stract numbers,  —  1,  2,  3,  etc.  They  were  the  only  units  of 
comparison  and  valuation  by  which  to  state  the  value  of  one 
commodity  as  reckoned  in  another,  to  be  exchanged  for  it. 
If  one  commodity  valued  in  the  other  were  assumed  to  be  2, 
the  latter  valued  in  the  former  might  be  3,  and  values  would 
stand  respectively  as  2  to  3  and  3  to  2.  There  could  be  no 
valuation  without  two  commodities,  for  one  commodity  rep- 
resented by  2,  and  another  by  3,  considered  independently 
and  separately,  are  mere  abstractions,  but  comjiared,  give 
rise  to  proportion,  valuation,  and  the  completion  of  the  equa- 
ls 


226  MONETARY  AND  INDUSTRIAL  FALLACIES. 

tion  of  exchange,  by  mutual  deliveries.  Precisely  so  is  it 
■with  what  we  call  money.  The  introduction  of  shells,  teeth 
of  animals,  etc.,  as  localized  macoutes,  pounds,  or  dollars,  was 
the  contrivance  of  savages,  but  it  demonstrated  the  ability  of 
savages  to  apply  abstract  units  to  the  purposes  of  exchange, 
for  the  shells  and  teeth  had  no  other  use.  The  introduction 
of  silver  and  gold  brought  the  process  of  exchange  to  perfec- 
tion, but  could  not  make  the  unit  less  abstract  than  before. 
As  soon  as  the  idea  of  direct  barter  by  means  of  abstract  but 
not  localized  units  developed  into  that  of  indirect  barter, 
the  simple  equation  of  exchange  was  mentally  converted  into 
two  equations  through  the  masterly  contrivance  of  making 
one  side  of  each  of  the  equations  abstract.  Had  contrivance 
stopped  there  it  would  have  produced  no  fruit,  for  how 
could  abstract  units  alone  be  accepted  as  an  equivalent  for  a 
commodity  ?  But  masterly  contrivance  did  not  stop  here  :  it 
localized  and  limited  the  unit  in  shells  and  teeth,  and  as  so- 
ciety developed  sufficiently  to  mine  for  the  precious  metals, 
it  localized  and  limited  the  unit  in  these,  and  here  it  rested, 
because  its  work  was  perfect.  The  complex  development  of 
banking  followed  naturally,  and  paper  money  and  "  the 
credit "  money  of  the  economists  followed  also.  To  apply 
the  term "  credit "  to  one  kind  of  money  more  than  to 
another  is  not  warranted.  Science  shows  us,  if  we  can  get 
rid  of  fallacies,  that  all  money  is  necessarily  based  on  credit : 
the  bullion  market  proves  this. 

The  fallacy  of  supposing  money  to  have  real  mercantile 
value  (the  impossibility  of  which  I  have  just  demonstrated) 
has  shown  itself  in  the  nature  of  the  objections  to  the  coin- 
age of  silver.  The  objections  are  all  based  upon  the  erro- 
neous idea  that  silver  when  coined  possesses  a  mercantile, 
while  the  objections  of  true  science  are  founded  upon  the 
fact  that  it  possesses  no  such  value.  You  can  now  by  four 
simple  equations  prove  this  fact  to  your  pupils  and  readers, 
as  well  as  the  fact  that  production  on  credit  is  the  origin  of 
all  deposits  in  excess  of  reserve,  and  of  banking  and  com- 
mercial crises,  while  real  sales  of  commodities  diminish  de- 
posits instead  of  creating  them  ;  and  that  limitation  of  such 


MONETARY  AND  INDUSTRIAL  FALLACIES.  227 

production  is  the  first  unci  most  important  object  of  bank 
reserve,  which,  in  order  to  effect  that  limitation,  must  be 
made  to  limit  bank  loans  short  of  a  crisis.  Your  equations 
may  be  stated  to  your  pupils  and  readers  thus :  p  (dolhirs 
of  wages  and  profits  borrowed  from  bank)  =  x  yards  of  cloth 
as  the  result :  10  units  of  wheat  =10  units  (dollars  borrowed 
from  bank  and  exchanged  for  the  wheat)  :  10  units  (dollars 
received  in  the  last  preceding  equation)  =  x  yards  cloth 
purchased  with  the  money.  Here  the  cloth  is  produced  by 
the  exchange  of  abstract  units  for  labor :  the  wheat  is  also 
exchanged  for  abstract  units,  which  are  in  the  last  equation 
exchanged  for  the  cloth  and  enable  the  manufacturer  to  pay 
so  much  upon  his  debt  in  bank.  The  purchase  of  the  wheat 
created  bank  debt,  but  it  will  soon  give  rise  to  a  fourth  equa- 
tion :  10  units  (wheat)  =  10  units  (dollars  received  on  sale 
to  a  consumer).  The  last  equation  pays  bank  debt  due  by 
the  buyer  of  the  wheat :  the  exchanges  are  all  made  by  ab- 
stract units,  and  the  latter  being  paid  by  consumers,  at  once 
reduce  deposits. 

Such  a  system  as  we  have  proposed  will  limit  municipal 
extravagance  and  taxation  more  effectually  than  anything 
else,  because  it  limits  the  power  of  borrowing,  although  con- 
stitutional limitations  ought  to  be  established  also. 

Simplification  of  the  revenue  system,  not  only  of  the  general 
government  but  also  of  the  states,  is  likewise  demanded. 
The  power  of  protection  is  very  limited,  because  the  protec- 
tion of  one  producer  lessens  the  consuming  power  of  all  pro- 
ducers. What  the  American  producer  most  needs  and  ought 
to  have,  is  the  protection  he  has  never  yet  enjoyed,  —  that  of 
a  sound  currency. 

C.  B.  0.  Our  debate  is  about  to  close,  and  as  it  is  to  be 
published,  people  who  read  it  may  wonder  why  that  class  of 
bullionists  who  believe  that  metallic  money  has  a  mercantile 
value  independently  of  all  convention,  measured  by  the  labor 
it  cost,  has  not  been  directly  represented  in  this  debate. 

N.  S.  B.  It  is  questionable  whether  any  one  can  be  found 
who  will  admit  the  correctness  of  the  conclusions  to  which 
those  premises  lead,  after  they  are  stated  to  him,  although 


228  MONETARY   AND   INDUSTRIAL   FALLACIES. 

he  may  in  terms  agree  in  advance  to  adopt  them.  Such  a 
bullionist,  however,  is  logical  in  framing  his  premises,  because 
they  are  not  contradictory,  as  are  those  of  the  former  school 
of  O.  P.  E.,  —  the  present  prevailing  school  of  economists. 
They  affirm  that  money  has  conventional  value,  and  at  the 
same  time  real  value  as  a  commodity.  This  is  a  contradic- 
tion in  terms,  and  when  they  are  met  by  the  conclusions  to 
which  the  mercantile  part  of  their  double  hypothesis  leads 
them,  they  endeavor  to  parry  their  force  by  setting  against 
them  the  conclusions  to  which  the  conventional  or  unit  the- 
ory lead.  In  like  manner  Avhen  they  are  met  by  the  con- 
clusions to  which  the  conventional  or  unit  part  of  their 
hypothesis  lead,  they  set  against  them  those  of  the  mercan- 
tile part  of  it. 

This  is  the  cause  which  has  prolonged  the  debate.  O.  P. 
E.  is  an  able  writer  and  logician.  He  has  parried  the  force 
of  my  arguments  from  so  many  different  angles  that  it  has 
required  a  long  time  for  us  to  come  to  definite  terms,  or,  as 
special  pleaders  say,  to  join  issue ;  but  with  such  a  bullionist 
as  you  speak  of  issue  is  joined  at  once.  His  premises  are 
immediately  traversed,  because  they  are  not  contradictory. 
He  has  eliminated  the  conventional  or  unit  theory  from  his 
hypothesis,  and  stands  squarely  upon  real  value.  It  requires 
but  a  few  plain  facts  of  history,  and  one  monetary  fact  of 
universal  import,  to  prove  that  the  hypothesis  is  false. 
Savages  who  have  discovered  the  precious  metals,  and  even 
used  them,  but  not  as  a  medium  of  exchange,  have  never 
attached  any  peculiar  value  to  them  over  and  above  other 
things,  and  dispose  of  them  readily  :  to  them  they  are  not 
precious.  The  monetary  fact  is,  that  they  have  really  no 
mercantile  value  whatever  except  when  reckoned  in  each 
other.  It  is  utterly  impossible  for  them  to  have  such  value 
so  long  as  they  are  used  as  money.  Even  units  of  bullion 
are  at  the  same  time  units  of  money.  Bullion  is  not  really 
sold  as  commodity,  although  we  have  Said  in  terms  to  the 
contrary,  in  this  debate,  and  my  friend  has  used  similar 
language  in  his  book.  It  is  the  language  of  the  market,  but 
it  is  not  true.     The  bullion  dealer  in  London  who  buys  gold 


MOXETARY   AND   INDUSTRIAL   FALLACIKS.  229 

bullion  with  gold  sovereigns  or  bank-notes,  merely  exchanges 
one  localized  unit  of  money  for  another.  Coinage  is  only 
government  verification  and  certification  in  a  convenient  and 
artistic  form.  If  there  were  no  mints,  prominent  merchants 
and  bankers  would  certify,  and  all  who  might  choose  would 
verify.  The  case  is  the  same  with  silver,  although  barter 
rates  between  these  metals,  as  material  for  the  units,  has 
changed  very  much  by  stopping  free  coinage  of  silver.  Gold 
and  silver  have  no  mercantile  value  except  when  reckoned 
in  each  other  for  the  purpose  of  determining  what  shall  be 
the  weight  of  their  respective  money  units,  and  this  reckon- 
ing must  be  made  in  the  absti'act  units  of  barter.  If  we  call 
one  ounce  of  gold  18,  we  may  call  one  ounce  of  silver  1. 
Barter  values  then  stand  as  18  to  1.  We  may  give  these 
abstract  units  a  name,  and  call  them  macoutes.  Barter 
values  will  then  stand  as  18  macoutes  to  1  macoute.  Again, 
we  may  call  them  dollars,  and  they  will  stand  as  18  dollars 
to  1  dollar.  The  precious  metals  are  bartered  only  when 
they  are  reckoned  in  each  other  and  exchanged,  but  this  bar- 
ter exchange  may  be  called  a  sale :  in  other  words,  silver  is 
sold  for  gold,  and  gold  is  sold  for  silver.  For  no  other  purpose 
is  precious  bullion  sold,  and  it  is  bartered  or  sold  (whichever 
term  we  choose  to  use)  in  this  case  only  because  the  barter 
rate  must  be  fixed  before  both  metals  can  be  used  as  money. 

0.  P.  E.  Why  do  you  call  the  exchange  between  the 
metals  barter,  or  sale,  indifferently  ?  How  can  a  barter  ex- 
change be  an  exchange  by  sale  according  to  the  principles 
we  have  established  in  this  debate  ? 

N.  S.  B.  It  is  because  the  usual  complex  elements  of 
barter  relation  are  first  of  all  tacitly  eliminated  from  the 
equation  of  barter  exchange,  and  relations  of  weight  alone 
considered,  that  the  exchange  can  be  called  a  sale.  It  is  in 
reality  but  an  exchange.  The  sale  of  gold  bullion  for  sov- 
ereigns being,  as  I  have  just  shown,  an  exchange,  so  the  sale 
of  silver  bullion  for  sovereigns  is  but  an  exchange,  differ- 
ing from  the  other  only  in  this,  that  gold  is  exchanged  for 
gold  of  equal  weight,  with  possibly  a  slight  premium,  and 
silver  for  gold  after  computing  relations  of  weight,  which 


230  MONETARY  AND   INDUSTRIAL  FALLACIES. 

are  Diade  from  time  to  time.  Because  money  of  all  kinds, 
whether  paper  or  metal,  is  but  a  process  or  contrivance  for 
the  exchange  of  commodities  by  the  conversion  of  direct 
into  indirect  barter,  and  gold  and  silver  have  for  ages  been 
in  use  as  material  to  localize  and  limit  the  abstract  units  of 
valuation,  and  thus  at  the  same  time  convert  them  into  con- 
ventional equivalents  in  the  two  equations  of  exchange, 
which  have  taken  the  place  of  the  single  one,  it  takes  a 
long  time  to  change  by  means  of  annual  product  to  any  im- 
portant extent  the  ratios  of  the  total  of  abstract  units  fur- 
nished by  either  metal  to  the  total  of  the  exchanges  in  which 
it  is  employed.  A  universal  and  immediate  abandonment 
of  either  metal,  although  abstractly  possible,  is  practically 
impossible.  If  we  call  15|  to  1  the  standard  relation  of 
gold  to  silver,  and  assume  that  the  average  of  all  changes 
in  that  relation  through  the  acts  of  Germany  and  the  Latin 
Union,  in  respect  to  tlie  coinage  of  gold  and  silver,  have 
changed  it  to  18  to  1,  or  fifteen  per  cent.,  then  undoubtedly 
there  has  been  equal  change  in  both  metals  in  respect  to 
commercial  demand,  and  commerce  lost  on  the  one  hand, 
and  gained  on  the  other.  One  must  have  gained  as  much 
as  the  other  has  lost.  But  is  there  any  mercantile  gain  on 
the  part  of  gold,  or  mercantile  loss  on  the  part  of  silver  ? 
Is  there  anything  more  than  variation  from  an  abstract 
and  imaginary  point?  Is  that  point  as  real  in  a  mercan- 
tile point  of  view  as  the  entity  or  quiddity  of  the  school- 
men ?  If  gold  has  risen  seven  and  one  half  per  cent,  in 
mercantile  value,  the  miner  and  the  bullion  dealer  ought  to 
trade  upon  the  rise,  but  they  can  in  reality  no  more  grasp  it 
than  they  can  quiddity.  On  the  other  hand,  if  silver  has 
fallen  from  an  imaginary  point  seven  and  one  half  per  cent, 
in  mercantile  value,  the  miner  must  have  lost  upon  his 
silver  as  much  as  he  has  gained  in  gold  ;  but  it  is  impossible 
to  measure  bullion  values  from  an  imaginary  point :  there 
must  be  something  real  to  measure  by.  When  gold  is  the 
"  standard,"  as  in  England,  the  change  in  silver  is  a  fall  of 
silver  ;  where  silver  is  the  standard,  the  change  is  a  rise  of 
gold.     But  how,  then,  are  the  miner  and  the  bullion  dealer 


MONKTARY   AND   INDUSTRIAL   FALLACIES.  231 

and  buyers  of  bullion  from  the  latter  affected  by  the  change 
in  relations  by  weight  of  the  two  metals?  In  a  monetary 
point  of  view  the  gain  in  gold  has  exactly  balanced  the  loss 
in  silver ;  the  miner  has  exchanged  gold  money  uncoined  for 
gold  money  coined,  and  there  has  been  no  rise  of  prices  as 
yet  through  the  change  in  the  relations  of  metallic  weight. 
Prices  have  fallen  in  Europe,  but  this  fall  has  no  relation  to 
gold  and  silver :  prices  have  fallen  in  consequence  of  the 
"  existing  depression."  The  miner  has  gained  nothing  then, 
and  tlie  bullion  dealer  has  gained  nothing  in  a  mercantile 
point  of  view.  Such  must  also  be  the  case  with  the  banker 
or  merchant  who  gives  his  check  for  gold  bullion  to  the 
dealer,  and  sends  the  bullion  to  the  mint.  But  although  the 
miner  has  surely  lost  on  his  silver,  because  15h  to  1  being 
the  former,  and  18  to  1  the  present  standard  relation,  he 
must  give  fifteen  per  cent,  more  silver  than  formerly  to  ob- 
tain a  like  number  of  gold  units,  he  has  gained  nothing  as  yet 
on  trold  althouoh  he  has  lost  on  silver.  The  bullion  dealer  is 
moreover  only  an  exchange  broker,  and  when  he  exchanges 
silver  for  gold,  he  must  in  the  exchange  make  all  his  profits 
in  gold  money.  But  suppose  the  miner  takes  his  gold  and 
silver  to  a  bullion  dealer  in  a  country  where  silver  is  stand- 
ard. He  has  lost  nothing  upon  his  silver :  his  silver  is 
worth  as  much  as  ever  to  use  in  the  exchanges  of  that 
country,  while  his  gold  has  gained  nothing  as  money  to 
use  in  the  exchanges  of  countries  where  gold  is  standard. 
Whether  silver  has  fallen  or  gold  risen  depends  then  en- 
tirely upon  which  one  is  "  standard  "  to  the  other,  and  the 
whole  question  is  merely  one  of  abstract  numbers.  But  it  is 
impossible  that  of  two  things,  one  should  rise  and  the  other 
fall  equally  in  respect  to  each  other  at  the  same  time ;  it  is 
a  contradiction  in  terms  to  affirm  it.  It  is  certain,  never- 
theless, that  there  has  been  both  a  rise  and  a  fall.  There  is 
but  one  solution  of  the  difficulty.  The  rise  and  fall  must 
be  considered  what  they  really  are,  —  a  change  of  relations 
between  masses  of  metal.  But  what  change,  and  in  what 
masses  ?  Not  a  change  in  the  purchasing  power  of  masses 
distributed  everywhere  by  commerce,  and  used   as  valuing 


232  MONETARY   AND   INDUSTRIAL  FALLACIES. 

and  paying,  and  therefore  conventional  units,  in  the  vast 
number  of  exchanges  going  on  throughout  the  world.  I 
have  shown  that  there  has  been  and  as  yet  can  be  no  change 
in  this  respect.  Where  and  what,  then,  is  the  change  ?  It 
is  in  the  ratios  of  commercial  demand  to  supply.  Refusing 
free  coinage  to  silver,  and  retaining  it  for  gold,  in  Germany 
and  the  territory  of  the  Latin  Union,  while  the  product  of 
either  metal  has  not  changed,  and  precipitating  on  the  mar- 
ket large  masses  of  silver  from  Germany,  have  been  the 
chief  agents  in  producing  the  results  we  have  been  and  are 
now  witnessing.  The  demand  for  gold  has  risen  seven  and 
one  half  per  cent,  in  excess  of  supply,  and  the  supply  of  silver 
has  risen  seven  and  one  half  per  cent,  in  excess  of  demand. 
The  rise  in  demand  on  the  one  hand  is-  exactly  equal  to  the 
rise  in  supply  on  the  other,  and  they  can  be  stated  with 
almost  mathematical  accuracy.  The  demand  on  the  one 
hand,  and  the  supply  on  the  other,  can  only  be  called  com- 
mercial on  the  abstract  or  money  side :  tliey  relate  directly 
to  buying  and  only  indirectly  to  selling.  The  bullion  dealer 
being  really  an  exchange  broker,  the  question  at  once  arises : 
What  can  he  and  those  he  exchanges  with,  after  he  has 
bought  gold  bullion,  do  with  it  ?  The  answer  is,  that  both  he 
and  they  can  only  exchange  it  for  other  money,  or  buy  mer- 
chandise with  it ;  they  can  never  sell  it.  The  profits  of  the 
dealer  must  then  consist  entirely  of  a  small  premium  he  will 
make  by  an  exchange  of  the  uncoined  for  coined  money. 
Gold  has  not  risen  as  a  commodity,  for  if  it  had,  an  increase 
of  demand  seven  and  one  half  per  cent,  in  excess  of  supply 
would  at  once  carry  up  the  price,  as  merchandise,  above  these 
fio-ures,  to  fall  back  to  them  afterwards.  The  rise  would  be 
manifest  to  the  buyer  as  well  as  to  the  seller  of  bullion. 
In  point  of  fact,  however,  there  is  no  rise,  because  rise  or 
fall  cannot  be  predicated  of  conventional  values  and  abstract 
units.  There  is  neither  loss  nor  gain  to  any  one  :  what  is 
going  on  is  merely  a  transfer  of  conventional  value  from 
silver  to  gold,  in  their  valuing  relation  to  commodities  or 
merchandise  in  general ;  and  this  change  is  slow,  and  the 
change  in  the  ratios  of  metallic  product  of  silver  to  that  of 


MONETARY  AND  INDUSTRIAL  FALLACIES.  233 

gold  is  also  slow.  Possibly,  there  may  be  no  change  in  this 
respect  at  all :  certainly  there  is  no  material  change  for  the 
present.  All  that  the  bullion  dealer,  still  retaining  his  char- 
acter of  exchange  broker,  can  do,  then,  with  his  silver  after 
he  has  exchanged  gold  for  it  with  the  miner,  and  all  that 
those  with  whom  he  exchanges  it  back  for  gold  again  can  do 
with  it  if  they  live  in  a  country  where  gold  is  the  stand- 
ard, is  to  exchange  it  for  other  (gold)  money,  by  giving  fif- 
teen per  cent,  more  silver  than  formerly,  or  buy  with  it  in 
those  markets  wdiere  silver  is  still  standard,  without  losing  a 
dolhir.  Why,  then,  should  they  give  fifteen  per  cent,  more 
in  exchange  for  gold  ?  Because,  after  losing  seven  and  one 
half  per  cent,  of  the  total  commerce  in  which  it  has  hith- 
erto been  employed,  silver  is  still  in  excess  of  the  total  com- 
merce which  is  left  it  through  the  causes  above  mentioned. 
This  excess,  added  to  the  seven  and  one  half  per  cent,  actually 
lost,  makes  up  the  fifteen  per  cent.  But  all  this,  so  far  as 
actual  commerce  and  prices  are  concerned,  is  not  only  in  the 
future,  but  it  is  in  the  possible  and  uncertain  future.  Gold 
and  silver  in  actual  use  as  money  in  commerce  may  never 
change  their  relations  to  prices  at  all.  What  has  caused  the 
falling  off  in  barter  exchange  between  the  metals  on  the 
part  of  silver,  then,  is  the  fact  that  demand  and  supply  have 
changed  while  the  ratios  of  metallic  product  have  continued 
unchanged,  and  coined  silver  has  also  been  largely  ex- 
changed for  gold.  If  metallic  production  and  mint  regula- 
tions continue,  gold  must  in  the  end  gain  and  silver  lose 
seven  and  one  half  per  cent,  in  their  general  relation  to 
units  of  merchandise.  As  it  is,  silver  supply  Cnot  silver  at 
large)  has  lost  as  compared  with  gold  seven  and  one  half  per 
cent,  of  the  commercial  demand;  and  because  this  loss  cannot 
be  immediately  distributed  through  commerce,  where  silver 
is  still  the  standard,  but  on  the  contrary  requires  a  long 
time,  and  inasmuch  as  the  loss  is  conventional  and  tempo- 
rary, and  relates,  therefore,  to  buying  and  not  selling,  silver 
supply  must  submit  to  an  immediate  additional  loss  of  seven 
and  one  half  per  cent,  more  as  compared  with  gold,  to  be 
made  up  to  it  in  the  future.  The  demand  for  gold  has  in- 
creased seven  and  one  half  per  cent.,  but  it  is  an  entirely 


234  MONETARY  AND    INDUSTRIAL  F^VLLACIES. 

conventional  demand  involving  only  the  transfer  of  purchas- 
ing power  from  silver  to  gold.  Gold  is  now  wanted  where 
both  silver  and  gold,  or  silver  only,  were  wanted  before,  and 
as  fast  as  silver  leaves  or  falls  short  in  circulation  gold  takes 
its  place  :  there  is  as  yet  no  rise  in  gold,  nor  is  there  any  fall 
in  silver  as  money.  Silver  product  has  thus  lost  seven  and 
one  half  per  cent,  of  its  commerce,  and  is  also  left  seven  and 
one  half  per  cent,  in  excess  of  its  remaining  commerce.  Until 
it  can  distribute  itself  (should  it  continue  the  same)  evenly 
with  the  commerce  it  still  retains,  the  latter  excess  must  con- 
tinue. Until  that  time  it  continues  a  loser  by  fifteen  per 
cent.,  whereas  the  new  commerce  which  gold  has  gained  is 
ready  for  all  the  gold  product  as  fast  as  it  can  be  obtained. 
But  when  silver  product  shall  have  distributed  itself  in  har- 
mony with  commerce  by  a  seven  and  one  half  per  cent,  gain 
in  number  of  units  relatively  to  that  commerce,  and  there- 
fore in  prices,  it  will  have  made  up  seven  and  one  half  per 
cent,  of  its  loss,  and  the  ratio  will  change  accordingly.  In 
respect  to  the  totals  of  commerce  belonging  so  to  speak  to 
each  metal,  gold  has  risen  and  silver  has  fallen  seven  and 
one  half  per  cent.  Either  a  falling  off  of  seven  and  one  half 
per  cent,  in  silver  product  in  the  future,  or  a  gradual  loss  of 
seven  and  one  half  per  cent,  of  pui-chasing  power  by  an  in- 
crease and  gradual  distribution  of  its  units  will  ultimately  re- 
store the  old  ratio  entirely.  For  any  single  nation  to  under- 
take at  this  time  the  feat  of  maintaining  a  "  double  standard," 
therefore,  is  folly.  Only  internationally  can  it  be  accom- 
plished. Free  coinage  of  both  metals  by  one  country  only 
would  in  all  probability  drive  out  gold :  possibly  by  one  chance 
in  a  thousand  the  true  ratio  might  be  hit,  and  standard  means 
the  same  thing,  because  it  means  relation  by  weight  of  either 
of  the  precious  metals  expressed  in  terms  of  the  other.  Be- 
cause the  effect  of  such  a  coinage  must  be  to  drive  out  gold 
on  the  one  hand  or  silver  on  the  other,  —  probably  the  for- 
mer,—  an  arbitrary  premium  of  exchange  Avould  be  created, 
founded  on  no  real  values  whenever  bullion  might  be  shipped, 
and  this  arbitrary  rate  would  appear  more  or  less,  even  short 
of  what  is  called  the  shipping  point  of  specie.     But  so  far  as 


MONETARY  AND   INDUSTRIAL  FALLACIES.  235 

silvet  is  concerned,  product  may  fall  off,  and  demand  for 
commodity  use  may  arise  suHiciently  to  restore  old  rates  very 
nearly  without  shipping  much  additional  silver  to  the  East. 

0.  P.  E.     What  do  you  call  the  commodity  demand  ? 

N.  S.  B.  The  demand  for  gold  and  silvijr  plate,  watch 
cases,  gold  leaf,  jewelry,  etc.  This  demand  is  not  brisk  at  this 
time,  because  the  value  of  the  units  of  metallic  money  is 
higli  in  relation  to  those  of  real  commodities.  This  makes 
metallic  material  high  in  price,  if  you  reckon  price  in  units 
of  commodities  at  large.  During  our  late  civil  war,  when 
metallic  money  commanded  a  high  premium,  and  even  after- 
wards, there  was  a  brisk  demand  for  commodities  manufact- 
ured out  of  the  precious  metals.  When  they  have  been 
converted  by  skilled  labor  into  commodities  they  are  in  that 
character  no  longer  exchanged  for  other  metal,  or  used  in 
buying  ;  they  are  then  sold  and  paid  for  in  units  of  money, 
like  all  commodities.  Labor  has  given  them  an  additional 
but  uncertain  value,  when  reckoned  in  other  commodities, 
and  the  reckoning  is  made  by  means  of  money.  This  is  no 
exchange  of  money,  for  buyers  and  sellers  fix  the  price  of 
the  metallic  commodity  in  abstract  units  of  money,  and  de- 
liver accordingly.  As  to  the  universal  desire  to  possess  the 
precious  metals  which  our  bullionist  is  supposed  to  insist 
on,  it  did  not  precede,  it  followed  their  general  adoption  for 
monetary  uses.  They  are  precious,  because  they  are  con- 
ventionally money  as  soon  as  mined,  and  for  that  reason 
only.  The  demand  for  gold  and  silver  as  money  has  no  ref- 
erence to  any  particular  quantity  of  metal.  If  the  produc- 
tion of  one  metal  (silver)  should  increase,  and  that  of  another 
(gold)  decrease,  in  reference  to  commerce,  the  demand  will 
change  accordingly  for  a  time,  and  the  barter  rates  of  ex- 
change between  the  metals  will  adjust  themselves  in  har- 
mony. This  is  exactly  Avhat  has  happened  in  reference  to 
silver  and  gold.  Calling  the  change  in  barter  relation  be- 
tween the  metals,  which  has  occurred  of  late,  fifteen  per  cent., 
one  half  of  it  is  rise  of  demand  for  gold  units,  and  the  other 
half  fall  of  demand  for  silver  units.  To  state  the  relation  in 
terms  of  supply,  the  supply  of  gold  units  in  reference  to  com- 


236  MONETARY  AND   INDUSTRIAL  F^\XLACIES. 

merce  is  short  seven  and  one  half  per  cent.,  and  that  of  silver 
in  excess  seven  and  one  half  per  cent.  Ultimately,  however, 
the  demand  for  gold  will  adjust  itself  to  the  decrease  in  the 
supply  of  gold  and  the  increase  in  the  supply  of  silver  ;  de- 
mand and  decreased  supply  of  gold  on  the  one  hand  will  be 
equal  to  demand  and  increased  supply  of  silver  on  the  other. 
Eliminating  demand  from  each  side  of  the  equation  we  have 
decreased  supply  of  gold,  in  reference  to  its  commerce,  equal 
to  increased  supply  of  silver,  in  reference  to  its  commerce ; 
in  other  words,  the  two  ratios  are  equal.  Quantity  of  metal, 
therefore,  and  consequently  cost  of  labor  in  mining,  have  no 
reference  to  the  value  of  metal  in  exchange  for  commodities, 
because  the  value  of  the  metal  is  conventional.  Each  kind 
of  metal  is  wanted  to  furnish  units  of  valuation,  purchase,  and 
payment,  and  quantity  of  metal  has  no  reference  to  this  ob- 
ject, except  for  the  purpose  of  duly  limiting  and  distributing 
the  units.  The  bullionist  of  the  strict  school  of  Smith  and 
Ricardo  had  no  need  of  a  representation,  therefore,  in  this 
debate  :  the  demonstration  which  proves  his  premises  false  is 
short,'  and  it  was  given  in  answering  you  :  to  answer  you 
effectually  required  a  long  time  and  some  repetition,  for  the 
reasons  already  given. 

0.  P.  E.  Before  entering  into  this  debate  I  considered 
the  subject  of  money  one  of  the  simplest  and  plainest  in  the 
world,  as  all  our  economists  do,  but  it  is  in  reality  one  of 
the  most  complex.  When  fully  understood  I  think  it  ought 
to  lead  to  correct  ideas  of  production  and  exchange.  If  your 
demonstration  is  correct,  it  seems  to  me  that  miners  and 
bullion  dealers  are  not  to  be  seriously  affected  one  way  or 
the  other,  as  a  class,  and  the  change  in  purchasing  power  of 
silver  and  gold  must  be  so  slow  that  even  debtors  and  cred- 
itors cannot  gain  or  lose  appreciably,  even  if  metallic  produc- 
tion continues  the  same  hereafter  for  each  metal :  it  must  be 
a  slow  transfer  of  purchasing  power  to  gold  until  it  has  in- 
creased seven  and  one  half  per  cent.,  and  a  slow  loss  of  pur- 
chasing power  on  the  part  of  silver,  until  the  loss  reaches  a 
total  of  seven  and  one  half  per  cent.  ;  or  possibly  there  may 
be  a  gradual  gain  in  gold  product  and  a  gradual  loss  in  sil- 


MONETARY  AND  INDUSTRIAL  FALLACIES.  237 

ver  product  until  gain  and  loss  amount  each  to  seven  and 
one  lialf  per  cent.  No  one,  therefore,  suffers  loss,  and  no  one 
gains.  It  is  taking  away  seven  and  one  half  per  cent,  of 
conventional  value  from  silver  and  gradually  carrying  it  over 
to  gold,  or  effecting  substantially  the  same  result  by  a  rela- 
tive change  of  seven  and  one  half  per  cent,  in  each  kind  of 
metallic  product.  Does  this  statement  embrace  all  possible 
change  of  relations  between  the  pi-ecious  metals  ? 

JV.  *S'.  B.  No ;  not  only  may  a  fall  of  seven  and  one  half 
per  cent,  in  purchasing  power  on  the  part  of  silver  be  accom- 
panied by  a  rise  of  seven  and  one  half  per  cent,  in  respect 
to  gold,  but  on  the  other  hand  a  gain  of  seven  and  one  half 
per  cent,  in  purchasing  power  on  the  part  of  silver  may  be 
accompanied  by  a  fall  of  seven  and  one  half  per  cent,  in 
respect  to  gold.  The  latter  change  of  purchasing  power,  as 
well  as  both  the  changes  you  refer  to,  would  tarry  back  gold 
and  silver  from  the  relation  expressed  by  the  ratio  of  18  to  1 
to  the  old  one  of  15^  to  1.  This  whole  subject  of  the  rela- 
tions of  gold  to  silver  or  silver  to  gold  becomes  thus  a  mere 
question  of  mathematical  proportion  between  intangible  units 
and  masses  of  bullion  in  equations  of  exchange.  Units  on 
the  negative  side  in  equations  of  exchange  between  buyers 
and  sellers  go  to  the  positive,  and  units  on  the  positive  side 
in  such  equations  go  to  the  negative  side,  in  equations  of 
relation  between  the  precious  metals.  Gain  on  one  side  is 
necessarily  loss  upon  the  other,  because  purchasing  power 
loses  as  the  abstract  money  units  of  valuation  increase,  and 
gains  as  they  decrease.  Should  silver  product  and  mint 
regulations  continue  the  same,  —  waiving  for  the  present 
those  of  the  United  States,  and  still  calling  the  average 
change  in  the  relations  of  gold  to  silver  a  rise  of  fifteen  per 
cent.,  —  as  soon  as  the  whole  mass  of  silver  coin  is  increased 
in  consequence  seven  and  one  half  per  cent,  in  relation  to 
commodities,  the  purchasing  power  of  silver  will  then  have 
fallen  seven  and  one  half  per  cent. ;  but  because  the  units  of 
silver  money  have  thus  been  increased  seven  and  one  half 
per  cent,  on  the  average  in  all  equations  of  exchange  between 
buyers  and  sellers,  the  demand  for  silver  Avill  then  have 


238  MONETARY  AND   INDUSTRIAL   FALLACIES. 

gained  all  it  lias  lost,  and  silver  must  rise  in  relation  to  gold 
seven  and  one  half  per  cent. :  it  must  then  gain  in  its  relation 
to  ofold  as  much  as  it  has  lost  in  its  relation  to  commodities. 
Ao'ain,  gold  —  product  remaining  the  same  —  will  have  lost 
in  its  relation  to  commodities  seven  and  one  half  per  cent, 
of  its  units  :   the  units  have,  therefore,  gained  seven  and  one 
half  per  cent,  each  in  purchasing  power,  and  the  supply  of 
gold  is  thus  made  equal  to  the  demand.     The  demand  for 
gold  was  at  first  seven  and  one  half  per  cent,  in  excess  of 
supply,  but  a  rise  of  seven  and  one  half  per  cent,  (gain)  in 
purchasing  power  has  brought  equilibrium  between  demand 
and  supply.     Gold,  therefore,  in  its  relation  to  silver  must 
have  fallen  as  much  as  it  has  risen  in  relation  to  commodi- 
ties.    Rise  of  one  precious  metal  in  relation  to  commodities 
is  fall  in  relation  to  the  other  precious  metal.     Neither  two 
positives  nor  two  negatives,  but  only  one  positive  and  one 
negative,  can  restore  equilibrium,  so  long  as  metallic  produc- 
tion  continues   the  same  as  heretofore.      Loss  of   silver  in 
relation  to  commodities  is  gain  in  its  relation  to  gold,  and 
gain  of  gold  in  relation  to  commodities  is  loss  in  relation  to 
silver.     The  old  bullion  ratio  of  15^  to  1  would  in  this  case 
be  ultimately  restored  by  the  equal  rise  of  gold  on  the  one 
hand  and  fall  of  silver  on  the  other,  in  respect  to  commodi- 
ties.    But  if  silver  —  its  product  continuing  the  same  —  lose 
seven  and  one  half  per  cent,  in  purchasing  power,  as  above 
supposed,  and  rise  seven  and  one  half   per  cent,  in   conse- 
quence in  relation  to  gold,  should  the  product  of  gold  mean- 
time increase  seven  and  one  half  per  cent,  this  would  at  last 
balance  the  increased  demand  of  seven  and  one  half  per  cent, 
and  gold  will  not  have  gained  in  purchasing  power,  nor  will 
its  old  relation  to  silver  have  been  changed  by  any  move- 
ments of   its  own.      But  while  it  has  thus  been   upon   the 
average  stationary  towards  silver,  silver  has  risen  in  its  rela- 
tion to  gold  seven  and  one  half  per  cent.,  and  the  general 
relation  has  changed  from  1  to  18  back  to  1  to  15^.     But 
suppose  the  product  of  gold  to  gain  fifteen  instead  of  seven 
and  one  half  per  cent.,  gold  will  then  have  lost  seven  and  one 
half  per  cent,  of  its  former  purchasing  power,  or  precisely 


MONETARY   AND   INDUSTRIAL  FALLACIES.  239 

the  same  as  silver.  Here  are  two  negatives  (losses)  of  seven 
and  one  lialf  per  cent,  each  in  relation  to  commotlities.  Sil- 
ver has  risen  towards  gold  seven  and  one  half  per  cent, 
undoubtedly  by  a  fall  of  seven  and  one  half  per  cent,  in 
purchasing  power,  and  gold  has  lost  the  same  percentage 
of  purchasing  power,  and  j'et  the  old  relation  will  be  re- 
stored, although  each  has  lost  the  same  percentage  of  pur- 
chasing jiower  in  reference  to  commodities.  But  suppose 
silver  to  have  fallen  fifteen  per  cent,  in  product  and  therefore 
to  have  risen  seven  and  one  half  per  cent,  in  purchasing 
power,  and  gold  to  have  also  lost  fifteen  per  cent,  in  product 
and  therefore  to  have  risen  twenty-two  and  one  half  per 
(jent.  in  purchasing  power,  the  relations  between  gold  and 
silver  Avill  remain  unchanged,  although  both  will  have  risen 
in  relation  to  commodities.  The  meaning  of  this  stated  in 
terms  of  money  is  that  the  value  of  each  metal  is  not  only 
conventional,  but  units  of  weight,  called  money,  furnish  as 
counters  intangible  units  in  and  by  which  to  estimate  the 
relations  of  commodities  exchanged  to  each  other,  and  stand 
in  the  character  of  tangible  units  as  the  equivalents  of  com- 
modities on  behalf  of  sellers  who  have  received  them  for 
and  in  lieu  of  commodities,  until  and  when  thej'^  also  in  turn 
as  buyers  give  them  in  exchange  for  commodities.  In  this 
view  it  may  be  said  that  they  count  and  value  as  units  in 
buying  and  selling,  and  meantime  stand  as  conventional  com- 
modities in  the  hands  of  holders  until  and  for  the  next  ex- 
change. While  original  barter  is  thus  converted  into  indirect 
barter,  when  we  look  at  money  as  counting  out  mere  units, 
every  equation  of  exchange  may  nevertheless  be  called  barter 
in  the  sense  that  money  may  be  considered  as  a  conven- 
tional commodity,  w^hen  it  is  not  counting  abstract  units. 
There  is  a  further  reason  for  calling  it  barter  with  one  con- 
ventional side  in  the  equation,  because  the  total  of  equations 
required  to  exchange  commodities  —  the  money  or  conven- 
tional sides  eliminated  —  is  the  same  it  would  be  were  direct 
barter  practicable  for  civilized  society  ;  every  buyer  satisfies 
a  want  and  every  seller  disposes  of  a  surplus  :  the  first  half 
of  commodity  exchange  is  made  by  the  seller,  and  the  last 


240  MONETARY  AND   INDUSTRIAL  FALLACIES. 

half  completed  by  the  buyer.  It  is  mathematically  certain, 
then,  that  money  is  not  a  commodity  whose  value  is  meas- 
ured by  the  labor  it  cost,  because  it  has  no  mercantile  value 
whatever  reckoned  in  commodities  ;  it  cannot  be  exchanged 
for  commodities  ;  commodities  must  be  indirectly  exchanged 
for  each  other  by  means  of  money.  Selling  without  buying 
is  a  mere  abstraction,  and  so  is  buying  without  selling  :  buy- 
ing is  essential  as  the  complement  of  selling,  and  selling  as 
the  complement  of  buying.  Nevertheless,  the  illusion  that 
metallic  money  is  a  real  commodity  in  the  hands  of  holders 
is  complete,  although  it  cannot,  unless  conventionally  and 
figuratively,  be  called  such  any  more  than  spindles  and  looms 
can  be  called  commodities  of  the  same  kind  with  cloth. 
The  unit  theory  of  money  ought  to  be  taught  as  matter  of 
science  and  applied  to  bank  loans  and  notes,  and  gold  and 
silver  and  paper  units  in  banking  reserve,  while  the  illusion 
of  the  commodity  theory  makes  every  holder  of  metallic 
money  serve  a  useful  purpose  by  holding  and  keeping  until 
he  is  compelled  to  part  with  it. 

0.  p.  E.  Bullion  value  of  gold  reckoned  in  silver  and  bull- 
ion value  of  silver  reckoned  in  gold  seem  to  be  but  a  mathe- 
matical statement  of  proportion  between  masses  of  metal  by 
weight :  considered  by  itself,  it  is  but  an  abstract  proportion. 

N.  S.  B.  That  is  true:  it  is  but  a  register,  in  other  words, 
of  relative  weights  of  masses  ;  but  what  masses  ?  Not  the 
masses  distributed  by  commerce,  and  found  in  treasuries, 
reserves,  and  pockets,  but  of  the  masses  in  the  bullion  mar- 
kets. The  meaning  of  the  register  is  this :  the  quantities  of 
gold  and  silver  offered  to  bullion  dealers  and  estimated  as  on 
hand  ready  to  be  offered  stand,  as  we  will  suppose,  to  each 
other  as  1  to  18  ;  formerly  they  stood  as  1  to  15^.  If  metal- 
lic production  continues  as  at  present,  silver  must  fall  and 
gold  rise  seven  and  one  half  per  cent,  in  relation  to  commod- 
ities. The  fall  in  silver  in  relation  to  commodities  will  re- 
sult from  its  gradual  distribution  through  commerce  in  quan- 
tities seven  and  one  half  per  cent,  greater  than  heretofore  : 
prices  will  therefore  rise  seven  and  one  half  per  cent,  in 
time,  and  to  maintain  that  rise  seven  and  one  half  per  cent. 


MONETARY   AND   INDUSTRIAL  FALLACIES.  241 

more  silver  than  lieretofore  will  be  needed,  and  that  will  ab- 
sorb the  present  excess,  by  creating  a  necessity  and  therefore 
a  demand   for  it.     Silver  will   fall   seven  and  one  half  per 
cent,    in    relation    to  commodities,  but  will  necessarily  rise 
seven  and  one  half  per  cent,  in  relation  to  gold :  its  fall  as  to 
commodities  will  be  its  rise  as  to  gold.     On  tiie  other  hand, 
the   supply  of  gold  falling  short  by  seven  and  one  half  per 
cent,  in    respect  to    its  commerce,  prices  will  adjust  them- 
selves accordingly  ;  gold  will  gain  in  reference  to  commodi- 
ties as  much  as  silver  loses,  and  the  former  excess  of  demand 
for  gold  over  and  above  supply,  before  this  adjustment  took 
place,  will  fall  off,  and  gold  will  therefore  fall  seven  and  one 
half  per  cent,  in  its  relation  by  mass  to  silver.     This  rise  of 
silver  towards  gold,  accompanying  its  fall  in  respect  to  com- 
modities, amounting  to  seven  and  one  half  per  cent.,  and  the 
fall  of  gold  towards  silver  for  an  opposite  reason,  being  seven 
and  one  half  per  cent,  more,  and  amounting  in  rise  and  fall 
to  fifteen  per  cent.,  restore  the  old  ratio  of  1  to  15i.    The  ele- 
ments of  the  change  are  seven  and  one  half  per  cent,  rise  in 
the  demand  for  silver  joZms  seven  and  one  half  per  cent,  fall  in 
the  demand  for  gold,  quantities  remaining  the  same.     The 
general  relation  of  metallic  product  to  commodities  will  al- 
ways be  the  same  :  the  particular  relation  will  change  by  tak- 
ing off  seven  and  one  half  2:)er  cent,  purchasing  power  from  all 
the  silver  in  the  world  and  adding  it  to  all  the  gold  in  the 
Avorld,  but  it  is  a  very  slow  change  and  hurts  no  one.    Metal- 
lic production,  however,  will  not  continue  the  same.     Silver 
will  be  used  for  manufacture  more  than  gold  ;  the  product  of 
silver  will  gain  and  that  of  gold  rise  in  quantity  :    the  supply 
of  silver  will  fall  gradually,  and  that  of  gold  rise  gradually; 
the   particular  relation   of  each  of  the  metals  to  commerce 
will  at  last  harmonize  with  the  general  relation,  and  the  old 
value  relation  of  1  to  15. \  will  again  be  restored  between  the 
two  metals.     To  speak  with  rigorous  accuracy,  it  is  because 
the  precious  metals  have  no  mercantile  value  whatever,  being 
used  only  to  exchange  commodities,  that  their  relations  of 
weight,  of  demand  and  supply,  and  of  distribution  both  as 

money  and  manufactured  commodity,  can  be  stated  with  al- 
io 


242  MONETARY   AND   INDUSTRIAL  FALLACIES. 

most  matliematical  accuracy,  speculative  estimates  eliminated. 
It  is  impossible  to  say  what  is  theii'  actual  mass  as  mone}'  or 
commodit}*,  but  whatever  it  is,  it  is  so  vast  that  the  ratio  of  an- 
nual product  must  be  small,  and  continually  growing  smaller. 
Both  metals  ought,  therefore,  to  be  made  money  equally  and 
everywhere,  by  free  coinage  at  an  agreed  ratio.  This  would 
carry  equal  quantities  into  the  mass  of  money  and  equal 
quantities  into  the  mass  of  metallic  commodities.  Nothing 
can  be  steadier  than  metallic  prices  when  metallic  units  move 
freely  in  circulation  :  under  mere  convertibility  and  ill-bal- 
anced production  producers  and  merchants  borrow  of  banks 
when  the  proportion  of  units  of  money  to  units  of  commod- 
ities consumed  stands  as  4  to  12,  and  when  they  pay  it  may 
stand  as  3  or  2^  to  12 ;  the  difference  is  loss  and  bank- 
ruptcy :  real  values  have  not  fallen  because  they  have  never 
risen  ;  it  is  the  ratio,  not  of  the  volume  of  all  money,  but  of 
all  money  in  circulation  to  goods.  From  every  point  of 
view  we  perceive  limitation  and  steadiness  to  be  the  impor- 
tant objects  sought  by  human  contrivance  in  the  use  of  me- 
tallic money,  whether  we  admit  it  or  not.  Should  metallic 
product  of  each  kind  continue  the  same,  all  silver  coins 
might  be  made  heavier  and  all  gold  coins  lighter  by  seven 
and  one  half  per  cent,  by  means  of  recoimige  before  being  paid 
out  from  government  treasuries,  and  there  would  then  be  no 
change  in  the  ratios  of  units  of  either  kind  of  metal  to  com- 
modities, and  the  old  ratio  of  relation  between  the  two  kinds 
of  bullion  would  be  restored.  This  would  amount  to  the 
same  thing,  however,  as  letting  quantity  of  metal  in  units  of 
each  kind  continue  the  same,  because  increase  of  the  ratio 
of  silver  units  and  decrease  in  the  ratio  of  gold  units  to  com- 
modities by  seven  and  one  half  per  cent,  will  be  so  slow  that 
the  whole  gain  of  ratio  on  the  one  hand  and  loss  of  ratio 
on  the  other  will  be  evenly  apportioned  to  all  future  equa- 
tions of  exchange,  and  thus  neutralized.  The  quotations  of 
silver  in  London,  then,  in  whatever  form  made,  show  how 
much  —  calling  the  gold  unity  —  the  silver  unit  ought  to 
weigh,  according  to  the  respective  ratios  of  demand  and  sup- 
ply at  this  time,  upon  the  assumption    of  their  remaining 


MONETARY   AND   INDUSTRIAL   FALLACIES.  2-43 

uncliaiiged,  in  onlcr  to  keep  the  ratios  of  the  totals  ot  each 
kind  of  units  to  commodities  the  same  in  the  future  as  in  the 
past ;  but  as  no  change  in  the  weiglit  of  the  unit  of  either 
kind  is  likely  to  occur  (except  for  "  subsidiary  "  uses  in  the 
United  States),  the  same  result  as  to  bullion  will  be  brought 
about  by  bahmcing  gain  of  ratio  in  silver  by  loss  of  ratio  in 
gold  in  the  manner  already  explained;  gain  on  the  one  hand 
being  equal  to  loss  on  the  other,  for  the  purpose  of  restoring 
the  old  ratio.  The  reason  is,  that  the  quotation  of  bullion 
rates  is  in  reality  a  quotation  of  the  rate  of  exchange  between 
one  kind  of  metallic  money  and  another  :  bullion  is  simply 
money  not  coined.  Coinage  of  silver  by  the  United  States, 
the  possibilities  of  changes  in  mint  regulations  elsewhere, 
and  increase  of  demand  for  commodities  of  silver  material 
as  "times  improve,"  are  elements  which  enter  into  bullion 
prices.  They  have  been  referred  to  in  this  debate  and  my 
friend  refers  to  them  in  his  work,  but  they  have  been  ex- 
cluded in  answering  the  bullionist  for  the  purpose  of  mak- 
ing the  demonstration  of  the  falsity  of  his  premises  com- 
plete. Money  is  a  contrivance  for  measuring  the  relations 
of  value,  demand,  and  supply  between  labor  and  commodi- 
ties, labor  and  capital,  and  commodities  themselves  by  means 
of  abstract  units,  and  abstract  units  were  resorted  to  because 
the  relations  could  be  expressed  in  no  other  terms.  The 
localization  of  the  abstract  unit  in  the  form  of  a  definite 
portion  of  a  commodity,  and  its  limitation  in  point  of  num- 
bers b}'  the  whole  mass  of  the  commodity,  approaclied  as 
near  as  possible  to  absolute  invariability  in  furnishing  units  : 
variability  belongs  rather  to  the  labor,  commodities,  and  cap- 
ital to  be  exchanged.  But  as  all  money,  whatever  its  form, 
counts  units  only,  the  taking  out  even  gold  units  by  bor- 
rowers and  buyers  from  banking  reserve  and  their  immediate 
return  by  sellers  and  depositors,  furnish  through  bank  loans 
an  excess  of  exchanges  unless  some  limit  is  fixed  to  such 
movements  by  the  reserve  itself.  The  manner  of  doing  this 
has  been  already  explained.  Conventional  value  being  given 
to  the  commodity  used,  solely  for  the  purpose  of  making  ex- 
changes,  all  real  value   is  eliminated  by  the  very  terms  of 


244  MONETARY  AND   INDUSTRIAL   FALLACIES. 

the  convention,  and  the  coraraodity  is  converted  into  mere 
units  of  weight  from  the  very  moment  the  weight  of  any 
particular  portion  of  its  mass  is  conventionally  ascertained 
by  coining.  But  inasmuch  as  miners  and  bullion  holders 
cannot  all  conveniently  coin,  they  exchange  their  uncoined 
bullion  b}'^  weight  for  bullion  coined  at  such  premium  as  may 
be  agreed  upon. 

I  will  close  the  debate  with  the  following 

SUMMARY. 

The  value  of  all  money  is  conventional,  and  hence  what- 
ever is  placed  and  accepted  as  money  in  equations  of  ex- 
change between  buyers  and  sellers  is  money  itself.  Deposits 
in  excess  of  reserve  arise  from  production  on  credit  by  the 
aid  of  bank  loans,  and  they  are  retired  and  extinguished  by 
a  sale  of  the  product  in  a  cash  market.  A  cash  market  is 
one  in  wdiich  commodities  are  indirectly  exchanged  by  means 
of  the  units  of  money  ;  it  may  be  called  the  market  of  true 
commerce.  In  that  market  merchandise  may  be  ,said  to  be 
indirectly  bartered,  because  if  out  of  all  the  exchanges  be- 
tween buyers  and  sellers  the  conventional  units  of  money 
are  eliminated,  the  merchandise  stands  exchanged.  The  ori- 
gin of  deposits  in  excess  of  reserve  (leaving  out  unproduc- 
tive consumption  through  improvident  loans  to  non-pro- 
ducers) lies  primarily  in  the  wages  of  that  labor  whose 
products  are  not  sold,  and  secondarily  in  the  profits  actually 
paid  to  capital  on  sales  of  those  products  to  intermediate 
producers,  who  hold  the  products  by  the  aid  of  bank  loans, 
and  who  may  or  may  not  succeed  in  selling  them  in  the  mar- 
ket of  true  commerce.  In  wages  paid  with  bank  loans,  there- 
fore, lies  the  origin  of  banking,  commercial,  and  industrial 
crises.  Excessive  production  could  not  proceed  as  far  as  it 
does  were  it  not  for  the  apparent  rise  of  prices  which  origi- 
nates in  the  wages  of  labor  expended  in  living.  It  is  main- 
tained for  a  long  time  by  the  profits  of  capital  expended  in 
like  manner,  as  well  as  in  the  payment  of  wages  to  labor  for 
the  purpose  of  the  same  kind  of  production,  and  also  in  va- 
rious other  kinds  of  production  more  speculative  and  unccr- 


MONETARY   AND   INDUSTRIAL  FALLACIES.  245 

tiiin.  Tiio  very  small  amount  of  bank-notes  and  coin  actually 
paid  out  by  banks  in  clearing  centres,  as  compared  with  what 
are  called  bank  credits  transferred  by  checks,  are  for  the  most 
part  the  very  slight  differences  between  the  outgoing  cur- 
rent, which  pays  wages  and  profits,  and  the  incoming  cur- 
rent, whicli  results  from  sales  in  the  markets  of  true  com- 
merce, when  production  is  gaining.  This  increment  is  at  first 
slight  but  gains  constantly,  and  adds  daily  to  the  volume  of 
bank  debt  in  excess  of  reserve,  whicli  accumulates  up  to  the 
time  of  a  banking  crisis,  and  then  begins  to  contract,  because 
the  return  current  out  of  the  market  of  true  commerce  (that 
of  consumers)  is  then  in  excess  of  the  outward  one  which 
supplies  wages  and  profits.  This  subject  of  production  on 
credit  is  not  understood  by  economists  or  bankers.  They 
suppose  that  bank  loans  are  devoted  to  the  purchase  of  mer- 
chandise, and,  at  the  worst,  cause  overtrading;  whereas  the 
whole  volume  of  deposits  over  and  above  reserve  is  the  record 
of  overproduction.  They  seem  to  have  no  conception  of  the 
forces  at  work,  entirely  ignoring  the  fact  that  labor  is  the 
source  of  all  merchandise,  that  the  oingin  of  all  bank  debt  in 
excess  of  reserve  lies  in  the  wages  of  labor  paid  with  the  pro- 
ceeds of  bank  loans,  and  that  if  there  were  no  prepayment 
of  wages  there  could  be  none  of  profits  until  cash  buyers 
appeared  ;  and  hence  no  banking  crisis.  The  only  remed}^ 
therefore,  lies  in  stopping  loans  at  some  designated  ratio  of 
reserve  to  bank  debt,  in  accordance  with  Adam  "Smith's  law, 
for  the  double  purpose  of  checking  production  and  prevent- 
ing it  from  proceeding  in  excess  of  nuirkets,  and  also  in  order 
to  prevent  any  deception  of  the  producers  by  the  rise  of 
prices. 

The  most  important  object  of  bank  reserve  is  to  main- 
tain harmony  of  production.  Extreme  and  one-sided  views 
ought  to  be  discarded,  because  they  do  not  embrace  all  the 
facts  upon  which  a  theory  ought  to  be  founded.  The  doc- 
trine of  the  free  traders  is  sound,  because  trade  between  na- 
tions ought,  as  a  general  proposition,  to  be  as  free  as  pos- 
sible ;  the  docti-ine  of  the  protectionists  is  sound,  because 
the  producers  of  the  United  States  ought  to  produce  to  their 


24:Q  MONETARY   AND   INDUSTRIAL  FALLACIES. 

utmost  capacity,  so  long  as  they  can  produce  in  harmony. 
No  abstract  theory  contains  the  whole  truth.  Surely  the 
furnaces  and  forges  of  the  United  States  can  produce  all 
the  iron  needed  as  fast  as  it  can  be  laid  down  with  advan- 
tasre.  It  had  been  better  to  have  constructed  railroads  more 
slowly  for  the  sake  of  saving  some  of  the  enormous  tribute 
we  are  paying  England  at  this  time.  It  is  doubtful  whether 
the  producers  of  the  United  States  need  any  protection  save 
that  of  a  sound  monetary  system  :  harmony  of  production, 
however,  is  essential  under  all  circumstances.  If  the  United 
States  had  the  benefit  of  a  sound  cui-rency,  and  production 
were  going  on  harmoniously  in  all  directions,  the  country 
could  receive  no  benefit  from  large  quantities  of  iron  or 
cloth  cheapened  by  a  crisis  in  English  production,  and  thrown 
upon  our  markets.  Free  traders  and  protectionists  have 
been  disputing  for  a  long  time  without  knowing  that  the 
most  important  element  of  protection  lies  in  a  sound  mon- 
etary system,  the  first  principles  of  which,  so  far  as  they  are 
concerned,  are  yet  to  be  learned.  The  tariff  question  has 
little  practical  importance  save  as  to  revenue.  The  word 
commodity  ought  to  be  banished  from  economical  science, 
and  give  way  to  articles  of  first  necessity  and  articles  of 
second  necessity,  or  similar  terms.  Capital  might  be  di- 
vided into  productive  and  non-productive.  It  is  as  reason- 
able to  call  a  railroad  or  railroad  shares  commodities  as  to 
call  the  iron  rails  which  are  laid  upon  the  tracks  such.  The 
earth  and  ballast  which  make  the  road-beds  might  as  rea- 
sonably be  called  commodities  as  railroad  ties  and  the  lum- 
ber which  enters  into  rolling  stock.  That  money  should  be 
called  a  commodity  is  still  more  absurd,  for  reasons  already 
given. 

The  most  important  function  of  metallic  money  where 
banks  exist,  and  furnish  a  large  portion  of  the  circulation 
through  loans,  is  that  of  limitation  of  bank  loans  and  thereby 
of  production  on  credit.  The  true  meaning  of  this  limita- 
tion defined  in  the  simplest  terms  where  metallic  money  con- 
stitutes the  reserve,  is  to  stop  loans  whenever  the  number 
of  metallic  units  in  the  reserve  stands  at  a  certain  ratio  to 


MONETARY   AND   INDUSTRIAL   FALLACIES.  247 

the  units  of  bank  tlebt  due  depositors,  and  to  make  no  loans 
which  will  carry  the  reserve  below  that  ratio.  The  reason 
why  steadiness  of  that  ratio  will  give  steadiness  of  loans  and 
consequently  of  production,  is  that  while  bank  loans  are 
nearly  all  devoted  to  purposes  of  production,  the  persistence 
of  the  mercantile  theory  as  matter  of  opinion,  and  of  na- 
tional habits  and  other  complex  elements,  maintain — bank- 
ing aside  —  a  very  great  degree  of  steadiness  in  the  ])ur- 
chasing  power  of  the  units  of  the  precious  metals.  If  we 
assume  that  the  United  States  have  heretofore  taken  upon 
the  average  six,  England  twelve,  and  France  eighteen  mill- 
ions of  dollars,  the  changes  in  the  ratios  of  these  several  to- 
tals to  total  average  metallic  production  will  be  slow  and 
proportioned  to  increase  or  decrease  of  commerce,  and  should 
commerce  be  stationary  there  will  be  no  change  at  all. 
Moreover,  in  consequence  of  the  persistence  of  national  habits 
and  slow  industrial  changes  in  those  countries  which  take 
most  of  the  metallic  product,  there  is  no  danger  of  any  sud- 
den expansion  of  the  number  of  metallic  units  put  in  cir- 
culation by  means  of  loans.  All  the  complex  elements  be- 
fore referred  to  will  continue  to  keep  a  steady  circulation 
where  metallic  units  constitute  the  whole  circulation  or  a 
deiinite  portion  of  it :  if  a  definite  ratio  of  metallic  reserve 
to  bank  debt  be  adopted  as  a  minimum  ratio  below  which 
no  loans  can  be  made  in  any  bank,  then  metallic  units  will 
upon  the  average  constitute  a  definite  portion  of  all  units 
of  money  in  company  with  bank-notes,  and  maintain  at  all 
times  a  uniform  rate  of  economy  of  metal.  Metal  cannot 
perform  its  most  useful  function  in  the  way  of  maintaining 
steady  production  and  steady  ])rices  where  bank  reserve  is 
continually  fluctuating.  The  cause  of  banking,  commercial, 
and  industrial  crises  has  been  shown  very  clearly  in  this  de- 
bate. It  is  not  the  uncertain  use  of  what  is  called  credit  in 
buying  what  has  already  been  produced,  but  in  producing 
on  credit  by  means  of  bank  loans. 

Articles  of  first  necessity  cannot  be  overproduced,  and 
are  never  in  advance  of  population  ;  articles  of  second  ne- 
cessity may  be  and  are  overproduced.      These  articles  may 


248  MOXETARY  AND   INDUSTRIAL   FALLACIES. 

properly  be  called  commodities  ;  they  are  soon  consumed, 
and  must  be  continually  produced.  The  exchange  of  these 
articles  is  ordinary  commerce.  Kailroads,  city  and  village 
houses  and  warehouses  may  be  called  the  accessories  of  com- 
merce. To  produce  articles  of  second  necessity  by  the  aid 
of  bank  loans  for  a  long  time,  in  excess  of  articles  of  first 
necessity,  must  certainly  lead  to  a  commercial  crisis,  but  to 
proceed  still  farther,  and  by  the  aid  of  bank  loans  and  profits 
declared  in  advance  of  cash  sales  build  up  the  accessories  of 
commerce  largely  in  excess  of  commerce  itself,  makes  the 
crisis  not  only  commercial  but  national. 

Had  overproduction  been  confined  to  articles  of  second 
necessity,  like  cloth,  clothing,  boots  and  shoes,  etc.,  it  would 
have  been  short.  New  England  suffers  less  than  Pennsyl- 
vania and  the  cities  and  towns  of  the  West.  But  the  arti- 
ficial in  excess  of  natural  inequalities  of  wealth  (the  latter 
of  which  are  essential  to  maintain  civilization)  are  an  evil 
which  a  sound  monetary  sj'stem  will  also  help  to  diminish. 
The  modern  tendency  is  to  increase  the  efficiency  of  cajDital 
by  consolidations  in  the  hands  of  corporations.  The  present 
danger  is  that  of  loss  of  individualism  through  the  necessity 
of  giving  the  power  of  management  to  a  few.  This  is  not 
communism  as  it  exists  in  idea,  but  it  is  what  communism, 
if  practically  carried  out,  would  end  in.  This  tendency  is 
already  too  strong,  and  ought  to  be  counteracted  by  the 
encouragement  of  individualism,  for  by  the  latter  has  human 
progress  thus  far  been  accomplished.  It  is  absurd  to  sup- 
pose that  farther  progress  will  result  from  systematically 
abandoning  the  motive  power  which  has  thus  far  sustained 
it.  Tiie  principle  of  individualism  is  injuriously  affected  by 
a  variable  currency,  which  bankrupts  so  many  and  concen- 
trates their  capital  in  a  few  hands.  Socially  as  well  as 
politically,  nothing  is  more  conservative  than  a  sound  cur- 
rency. 


UiSliVERSIlY  OF  GAUFORislA 

AT 

LOS  ANGELBiS 

LlBRAKi^ 


I 


!)C  '^iOUTurRri  RfCIOfJAL  LIBRARY  FflCIUTY 


\  I  i\  '  ill  il'  ill 

AA    000  590  453    7 


